It has projected the NPAs of NBFCs to increase by 160-180 basis points by the end of March 2022 as compared to a year ago. For housing finance companies (HFCs), this increase could be 60-80 basis points.
“The revised norms will lead to an increase in the NPAs of NBFCs including HFCs in the near term. Also, it will impact the earnings performance which will be reflected in the next few quarters, if forward flows are not included in the NPA category,” ICRA said on Thursday. said.
The Reserve Bank of India, through a note on November 12, provided clarification on income recognition, asset classification and provisioning rules for banks, NBFCs and all-India financial institutions. Key points include classification of Special Mention Accounts (SMA) and NPAs on a day-end basis and upgrade from NPA to Standard category only after clearing all outstanding overdues.
In other words, lenders can upgrade the NPAs to the standard category once the entire dues are cleared.
While banks will not be affected as they are already complying with this rule, NBFCs are normally upgrading NPA accounts, even with partial payment of overdues, till the reporting date. But the total overdues were for less than 90 days, ICRA said.
Going forward, the movement in the standard asset category will be affected as borrowers of NBFCs are under stress in general and thus may not be able to clear all dues.
AM Karthik, vice-president of financial sector ratings at ICRA, said expected slippages from the restructured book, slippage from the 31-90-day category (Phase-2) and delay in upgrading to the standard category are the expected growth factors. “Entities will have to tighten their internal controls for timely identification and updating of collections, especially cash collections,” he said.
The restructured books of NBFCs and HFCs are projected to grow at 4.1-4.4% and 1.8-2.2%, respectively, in March 2021 from 2.2% and 1.0% in March 2021.