New rules may affect short-term NBFC profitability: R. Gandhi
Fears that the new norms will lead to higher borrowing costs and trigger repossessions are baseless, the deputy governor said
Chennai: New rules formulated by the Reserve Bank of India (RBI) may affect the short-term profitability of non-banking financial companies (NBFCs) but will not lead to loan recalls or repossession of assets, RBI deputy governor R. Gandhi said on Sunday.
RBI had issued revised norms for NBFCs this month.
Fears that the new norms will lead to higher borrowing costs and trigger repossessions are baseless, the deputy governor said, addressing the 110th foundation year of City Union Bank in Chennai.
“The central bank is telling NBFCs to be truthful when reporting bad loans as you prepare the balance sheet—recognize it if the interest is not paid, follow accounting discipline so that all stakeholders know the real financial picture of these finance firms," he said.
Income recognition and asset classification norms are thus an accounting requirement; these in no way curtail an NBFC’s right to extend time to borrowers who are viable, Gandhi said. These norms do not require that those loans classified as non-performing assets (NPAs) should be recalled or repossessed. This is a call NBFCs will take based on their assessment about the possibility of repayment and the probability of default, and not on the mere fact that these assets are classified as NPAs.
According to available data with RBI, only five deposit-taking NBFCs may have to bring down deposit levels, he said.
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