A day after RBI issued new norms on the NPA classification by the non-banking financial companies...
A day after RBI issued new norms on the NPA classification by the non-banking financial companies, performance of NBFC stocks were mixed on bourses. Analysts believe tougher norms laid down by Reserve Bank of India (RBI) will strengthen the sector structurally in the medium-term.
Shriram Transport Finance (4.93%), L&T Finance (3%), M&M Financial Services (1.14%) and HDFC (1.09%) ended in the green on Tuesday.
On other hand, SREI Infrastructure (-4.86%), Shriram City Union (-2.4%) and Religare Enterprises (-1.32%) closed in red.
Experts believe that clarity on the guidelines will reduce the downside risks to NBFCs’ current valuations. “With clarity on the regulatory stance on capital adequacy and asset quality, we see a limited downside risk to NBFC valuations,” said Kaitav Shah and Clyton Fernandes of Anand Rathi.
RBI had notified new guidelines on Monday that put restrictions on accessing public deposits.
The guidelines require NBFCs to treat a loan as NPA once payment is overdue beyond 150 days in 2015-2016. For 2016-17, this period must be brought down to 120 days and to 90 days by March 2018.
According to analysts, Shriram Transport Finance could see a negative impact due to the 90-day NPA norm, but it would be limited due to provisioning policy. “While the market may perceive the company to be impacted more given its aggressive NPA recognition policy (180-days), we believe its NPA provisioning policy is conservative (~79% NPA coverage) and should help reduce the potential impact. We reaffirm Buy on Shriram Transport,” Nomura said in a report.
Analysts say M&M Financial Services may see a smooth transition to the 90-day NPA recognition norm by 2018. “MMFS is already at 150-day NPA recognition and, hence, it will not impact the transition from 180 to 150 days in March 2016, but will affect transitions after that,” Nomura added.
For HDFC and LIC Housing Finance, the impact will be limited as they already follow the 90-day NPA recognition, according to analysts.