NBFCs may see an uptick in NPAs: Icra

Gross NPA percentage could increase to 4.2-4.4% by year-end

Non-banking financial companies (NBFCs) are likely to see an uptick in bad loans as they migrate towards tighter non-performing asset (NPA) recognition norms, said Icra, a credit rating agency.

"The gross NPA percentage of retail focused NBFCs (excluding captive financiers) have stabilised at 4.3 per cent in December 2015 as compared to 4.1 per cent in June 2015. This however is higher than 3.4 per cent in March 2015 largely on account of migration of NBFCs to tighter NPA recognition norms, as the regulatory minimum NPA recognition moves to 150+ day by March 31, 2016. Based on Icra's estimates, gross NPA percentage could increase to 4.2-4.4 per cent by the end of the year as all NBFCs align their NPA reporting based on the 150 + day norm," said a report by the rating agency.

According to current regulations, for an NBFC, an asset is classified as non-performing when it remains overdue for six months or more for loans and overdue for 12 months or more in case of lease rental and hire-purchase instalments, compared with 90 days for banks.

The new norms proposed to reduce the period in a phased manner so that the norms are at par with banks by March 31, 2018. It also added that as a result of moving to tighter norms for reporting of bad loans, even profitability would come under pressure. The report said that in FY17, Icra expects an additional 15-20 basis-point hit with migration from the 150+ day norm to the 120+ day norm.

However, NBFCs are expected to grow at a faster pace. It said that in FY17, credit growth could pick up to 19-22 per cent, against 18-20 per cent expected in FY16.