RBI gives NBFCs more time to meet tougher bad loan standards

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The Reserve Bank of India on Tuesday gave non-bank lenders more time to adhere to new rules for reclassifying non-performing loans as standard assets.

the guidelines issued in November 2021 directed NBFCs to upgrade NPAs only after all interest arrears and principal due have been repaid on the credit facilities.

NBFCs previously had to have systems in place for this by March 31, 2021. The regulator has extended this by six months until September 30, 2022.

The new NPA upgrade guidelines were expected to lead to an increase in bad debts among non-bank lenders. For example, housing financier Housing Development Finance Corp., which implemented the new rules ahead of the October-December quarter deadline, reported an increase in its gross NPA ratio to 2.32% as of December 31. , compared to 2% earlier.

“Previously what we did was if three installments were unpaid and it became NPA, if the client paid two, we could move to a standard asset. Now we can’t do that. It added around 30 basis points to our NPA,” Keki Mistry, vice president and general manager at BloombergQuint said in an interview.

In a January 20 statement, the rating agency ICRA Ltd. had stated that the new upgrade standards would lead to greater discrepancy in NPA figures, but this would not affect the risk profile of NBFCs.

“In view of the enhanced NPA recognition and upgrade standards notified by the Reserve Bank of India (RBI), the Gross Stage 3 (GS3) reports vis-à-vis the NPA reports to the RBI could see increased divergence; it is believed that this would not affect the risk profile of NBFCs in the near term,” the ICRA had said.

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