Revised NPA slots to raise capital needs of NBFCs

Industry chamber Assocham today said the revised classification of non-performing assets (NPAs) for NBFCs will raise their capital requirement and cost of lending.

Assocham said it opposes the government's revised classification of NBFC loans, whose overdue period exceeds 90 days, as NPAs. Non-banking financial companies (NBFCs) provides secured and unsecured advances.

Under the existing norms, an unsecured asset overdue beyond 90 days and a secured asset overdue beyond 180 days are treated as NPAs, the chamber said.

"NBFCs are a major source of funding for unorganised sector of the economy. The revised classification will eventually increase capital requirements of NBFCs and their cost of lending," Assocham said in a statement.

It also underlined the need for an enhanced time-frame of five years to meet the Tier I capital to risk weighted assets ratio (CRAR) at 12%. At present, the time limit is three years.

NBFCs should be allowed to deploy surplus liquidity in government securities, treasury bills and money market with maturity beyond 30 days, it said.

For computing total financial assets, cash and bank deposits, such instruments may be deducted and treated as part of financial assets, it said.

NBFCs account for nearly 12% of advances of the total financial system and can play a major role in furthering financial inclusion, it said.

There are 12,630 NBFCs registered with the Reserve Bank of India providing credit delivery in asset financing and hire purchase. In FY11, they delivered credit to the tune of Rs 4.62 lakh crore, it added.