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RBI tightens NPA norms for NBFCs

BS Banking Bureau

The Reserve Bank of India has tightened the non-performing assets provisioning norms for the non-banking finance companies by abolishing the 'past due' concept effective from March 31 next year.

It has also laid down a demand loan policy as often finance firms are found granting loans without specifying the maturity profile or interest rates.

Following the new norms, a sticky loan will be classified as NPA if the instalment or the interest remains overdue for six months (180 days). Earlier under the past due concept, the period was 210 days including the 30 days grace period. However, the lease and hire purchase assets will turn sticky if the instalment remains overdue for more than a year.

The central bank earlier had abolished the 'past due' concept for commercial banks effective from March 31, 2001. In a media release it said: "Keeping in view that the prudential norms for NBFCs are similar to those applicable to commercial banks, the concept of 'past due' has been abolished from the definition of NPA for NBFCs."

The RBI also observed that some NBFCs were granting demand/call loans with an open period or without any stipulation regarding the rate of interest and servicing. This has led to the difficulty in ensuring compliance with prudential norms on income recognition, asset classification and provisioning in respect of such loans.

To obviate this difficulty the central bank has directed all NBFCs granting demand loans to lay down a policy duly approved by their board. It said the policy should mention a cut-off date within which the repayment of the loan will be demanded/called up, the rate of interest and the periodic rests for payment of interest. The usual NPA and provisioning norms will be applicable to all such loans as well.

The apex bank also said that it was observed that some NBFCs were using divergent yardsticks for identification of loss asset. It has advised objective criteria which can be considered as potential threat to the recovery of assets.

The list of criteria includes non-availability of security either primary or collateral, in case of secured loans and advances, erosion in the value of security (primary or collateral), insurance claim, if any, has been denied or settled in part, any fraudulent act or omission on the part of the borrower resulting in non-recoverability of the asset and defective documentation or where debt is time barred.

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