The new rules are in sync with the guidelines for commercial banks and give NBFCs a little more flexibility for dealing with stressed loans. However, they now have to set aside provisions of 5% for fresh restructured loans; for existing restructured loans, the provisions will go up to 5% in a phased manner by March 2017.
Said N Sivaraman, president and whole-time director, L&T Finance Holdings: Previously, if NBFCs restructured loans, it would be qualified as an NPA. Now, we get the benefit of it being a restructured standard asset rather than an NPA. Gross NPAs in the balance sheet will come down, and restructured loans would be classified separately.
A loan for an infrastructure project will now be classified as NPA if it fails to commence commercial operations within two years from the original date of commencement of commercial operations (DCCO), unless it is recast and becomes eligible for classification as standard asset.
If the infra project commences operations within two years on the new DCCO, the NBFCs will have to set aside 0.25% against the loan. If the DCCO is extended beyond two years and up to four years, then the provisioning shoots up to 5%.
Loans given to non-infra projects will be considered an NPA if they do not commence operations within one year if its DCCO, unless the loan is restructured and the NBFC will have to make an additional provisioning of 0.25% of the loan amount.
The differential classification was seen as a welcome move by NBFCs and said provisions should be according to a risk profile of a segment.
I think the business profiles for banks and NBFCs are very different and so is their risk profile for loans. NBFCs tend to lend to smaller companies and not to large corporates. But when it comes it something like infra loans, the new classification is a welcome move, said GS Sundararajan, group director, Shriram Group.