NBFCs seek relaxation from RBI on asset classification and provisioning standards

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Non-Banking Financial Companies (NBFCs) are still hoping for some relaxation from the Reserve Bank of India (RBI) on standards for revenue recognition, asset classification and provisioning of advances.

“Industry associations have asked the RBI to review the requirements and give us a bit more time to do this alignment. The reason is that we need to communicate with customers across the country, and they will need to align their payments. We hope something will come from the RBI in terms of leadership this month,” the head of an NBFC said.

The RBI, however, has not granted these requests so far.

“We have been following the RBI on this issue for some time. The impact of the circular is evident on the NPAs of a number of NBFCs. We hope that some extension will be granted so that NBFCs have more time to comply with the standards. Otherwise, even the fourth quarter results will be impacted,” said another industry player.

Industry bodies including the Financial Industry Development Council, Confederation of Indian Industry and Assocham have reportedly asked the RBI for some help on the matter.

In a representation in January, the FIDC had asked the RBI to consider a one-year extension, until April 1, 2023, to implement the standard and exempt small retail loans up to Rs 2 crore from the directives until the situation returns to normal.

Highlighting the disruption of the pandemic, the FIDC in its representation had said that most NBFC borrowers are self-employed or belong to the MSME segments and are economically vulnerable and would need more time to stabilize their operations.

“At present, it would be rather onerous for them to adhere to the revised standards of reclassification to standard account, after being NPA-marked,” he said.

In a November 2021 notification, the RBI had clarified the prudential standards on revenue recognition, asset classification and provisioning regarding advances for all Indian banks, NBFCs and financial institutions. He had said that the NBFC must recognize the loans as NPA if they are not served for more than 90 days. The objective is to standardize the implementation of IRACP standards in all credit institutions. Also, upgrading of accounts classified as NPA should only be done when all arrears of interest and principal are paid by the borrower.

Borrowers’ accounts should be flagged as delinquent by lending institutions as part of their end-of-day processes for the due date, regardless of when these processes were carried out, the RBI had said. , adding that the classification of borrower accounts as SMA as well as NPA should be done as part of the end-of-day process.

Published on

February 06, 2022

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