No relaxation in asset classification, provisioning norms for NBFCs : RBI

The central bank in a November notification said NBFCs must recognise their debts as bad debts if they are not serviced for more than 90 days, bringing them in line with banks. Most large NBFCs already follow this practice, but smaller NBFCs make an account standardised only if one monthly installment is paid after the borrower defaults on three monthly instalments. This is because of the nature of the credit profile the NBFCs lend money.

NBFCs mainly borrow money from banks to lend it further. Therefore, the lending rates of NBFCs are always higher for borrowers who do not get funds from banks because of their low credit profile.

Given the element of risk in these customers, NBFCs follow a delayed NPA recognition and generally classify an account as an NPA only when it is due for 180 days. Earlier, NBFCs were officially allowed by the RBI to let bad debts be recognised only when they were not serviced for 180 days.

There are various estimates by agencies on the spike in bad debt numbers. India Ratings estimates that the NPA numbers could rise by as much as a third. According to ICRA, NPAs could rise by 160-180 basis points by March for the sector. The housing finance could also see their NPAs rise by about 60-80 basis points by March because of the RBI norms.