Mumbai: Moving which can lead to more non-banking financial company loans categorized as NPA and increase the provision requirements, the RBI has tightened NBFC asset classification norms.
Guidelines, which come into force on March 30 next year, bring NBFC classification norms equivalent to banks.
This guideline is notified by the central bank in the form of clarification of its prudential norms for recognition of income, classification of assets and conditions (IRACC) relating to progress.
“To ensure uniformity in the implementation of IRACC norms in all loan institutions, certain aspects of the regulatory guidelines that are still being clarified and / or harmonized, which will apply to all loan institutions,” RBI said with the same.
Two classifications will directly affect NBFC norms.
The first is related to when a naughty borrower, which has been classified as NPA, can be improved.
In the bank, if the default borrower is long enough to be classified as NPA, they must pay all the principles and interests that remain unpaid to release the NPA label.
In terms of NBFC, some of them have increased accounts if the borrower returns to the payment schedule and pays the interest of the past.
“The criteria for the NPA upgrade have been tightened for NBFC.
This can lead to the NPA surge as an enhanced loan from NPA to High School (Special Mention Account) 2 can no longer be classified as standard,” said ICRA VP Anil Gupta.
He added that banks were in any case increase NPA to high school only after all the late amounts in connection with the principal and interest received.
The difference in classification of assets is also the reason why the bank that obtained the NBFC portfolio finally reported a small surge in NPA.
Other changes – that lenders must classify the borrower’s account because it is too late in accordance with their final process – the power for the due date regardless of when the process is done.
Many banks have followed the process in which they classify loans as default only if money is not received at the end of the month.
This means that the borrower who does not fulfill their payment obligations on say15 months will soon be classified as naughty but if there is a payment on the 17th will be increased.
This means more work for banks in terms of reporting but overall delinquency may not rise.
Bankers said that if the default rule on the same day applied there would be many defaults because almost a third of the borrower did not have enough balance on the due date.
This can be seen in the 31% bounce rate in automatic discharge payments.