By Piyush Shukla
After the introduction of Reserve Bank of India’s (RBI) new policies on prompt corrective action (PCA) and upgradation of bad loans, some non-banking finance companies (NBFCs) could report an increase in provisions or write-offs. Industry experts also don’t rule out a change in product mix, following the new norms.
“Some NBFCs, which have NNPA (net non-performing assets) near the threshold-1 (6%) could see an increase in the write-off or provisions. However, the extent of the same would be dependent on the impact of daily recognition/tightened upgrade policy, which was rolled out in November 2021, and existing provisions carried by those companies. While at the sector level, provisions carried are adequate at present, some entities could be impacted,” AM Karthik, vice-president and sector head of financial sector ratings at ICRA, told FE.
In a report published Wednesday, Motilal Oswal said only Mahindra & Mahindra Financial Services (M&M Finance) had NNPAs of more than 6% which it could conveniently bring down to less than 6% by the end of the current financial year. Speaking to FE, M&M Finance vice-chairman and managing director Ramesh Iyer said the company had guided for NPAs to fall to 4% by March. “We do believe that with recovery process and market conditions improving and crop money coming in, we should naturally go to below 6%.”
However, commenting on the November 12 guidelines of the RBI which said loan accounts classified as NPAs could be upgraded to ‘standard’ assets only if the entire arrears of interest and principal were paid by the borrower, Iyer said this was a little difficult for the profile of customers that the company worked with.
“I believe that all of us will need to revisit the business model so as to follow this rule. We will be careful about customer segment that can be considered. There will be a percentage of customers who definitely cannot pay on the appointed due date, for them it is completely dependent on the marketplace. So people will choose which segments to work, which application to work, which geography to work, so there will be this rejigging of the model. But, it is too premature to say it will have an impact on the business volumes, but definitely there will be a rethinking on the business model,” Iyer added.
Shriram Transport Finance and Shriram City Union Finance, on the other hand, do not upgrade any NPA to standard at present till all dues are cleared, said YS Chakravarti, MD & chief executive officer at Shriram City Union Finance. “On the daily NPA stamping, however, both companies will have to change their current practice, and this may see a marginal increase in Stage 3 numbers in Q3 (October-December). The impact could be higher in Q4 (January-march), but keep in mind these would be accounting details, and our credit costs would remain largely unaltered in the short-term, while trending lower in the medium-term because of higher collection efficiencies,” he told FE.