Reserve Bank of India (RBI) has allowed some easing for lenders – including non-banking financial corporations (NBFCs) – to comply with its new regulations for upgrading non-performing assets (NPAs) as default, but after netting of all contributions. The Reserve Bank on Tuesday extended the time limit for classifying assets to September 30, 2022, as opposed to the previous deadline of December 31, 2021.
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Shares of NBFCs rebounded as Mahindra and Mahindra Financial Services rose 4.52 percent, IIFL Finance Ltd gained 2.25 percent, Poonawalla Fincorp closed 1.54 percent higher, L&T Finance Holdings rose 1.18 percent, Shriram Transport Finance Corporation 0 .91 percent higher, Shriram City Union Finance climbed 0.56 percent and Power Finance Corporation rose 0.58 percent.
Under RBI standards, loan accounts classified as bad loans or NPAs may only be upgraded as “standard” assets if the entire arrears of interest and principal are paid by the borrower.
The new RBI circular, issued in November, also requires all lenders to state — in loan agreements — specifically the exact maturity date of a loan and the breakup of principal and interest, rather than the dates due, leaving room for interpretation. .
Umesh Revankar, Vice Chairman and Chief Executive Officer, Shriram Transport Finance: “As a welcome move, RBI has given NBFCs more time to adhere to new standards for upgrading NPAs to standard assets. The new NPA upgrade guidelines would have resulted in a spike in NPAs for NBFCs and therefore there would have been a need for higher We welcome the extension that the RBI has given as it will give more time to NBFCs and it will also put less pressure on the overall credit profile of the borrowers.”
YS Chakravarti, Managing Director and Chief Executive Officer, Shriram City: “The extension of the NPA recognition standard of RBIs will give some breather to NBFCs’ Q4 FY22 result (quarter ending March 2021-22). Most NBFCs have already absorbed the impact into their third quarter (Q3) results FY22 Clarification alone by RBI delays adoption of the new standards Rolling back provisions already made, while allowed now, is unlikely to be the route NBFCs can take due to the accounting complexity For Shriram City Union Finance, there will be will be no impact as our loan portfolio is already well provisioned for. Furthermore, given the strength of our collection efficiency, we expect our delinquencies to gradually decrease in 2022.”