'Allow systemically important NBFCs to float perpetual bonds'

Industry chamber Ficci today suggested that systematically important non-banking finance companies (NBFCs) should be allowed to raise funds through perpetual bonds.

"Both deposit-taking systematically important and non-deposit taking systematically important NBFCs should be allowed to raise perpetual bonds," Ficci said in a statement.

Currently, only non-deposit taking systematically important NBFCs are permitted to augment their capital in this way.

Ficci has also suggested that the recommendation of the Usha Thorat committee fixing the period of default prior to classification of loans as non-performing assets (NPA) should be introduced in phased manner.

The working group on 'Issues and Concerns in the NBFC Sector' headed by the former Deputy Governor had suggested a 90-day period of payment default for recognition of NPAs by NBFCs, in line with banks.

At present, the period of default prior to classification of loans as NPAs in the case of NBFCs is higher, at 180 or 360 days, compared to 90 days for banks. A 90-day period for recognising the NPAs of NBFCs, in line with banks, would impose an avoidable provisioning burden on the NBFCs and could result in NBFCs deciding to opt for early foreclosures, depriving their borrowers of an income generating asset, it said.

It is to be noted that the Thorat panel, in its report to the RBI in August, suggested tighter norms for NBFCs with the aim of strengthening the regulatory and supervisory framework for such lenders.

Considering the experience of NBFCs in terms of foreclosure losses, the extant NPA norms should be followed, Ficci suggested.

If at all this 90-day provisioning stipulation is to be introduced, it needs to be carried out in a phased manner, given that its impact on the industry will be very high, it added.

The committee had also made a recommendation for income tax deduction of NPA provisions. The proposal to enhance NPA provisioning may be made effective only when income tax deductions for such provisions are allowed, Ficci said.

In addition, it said loans in the form of NCDs should not be treated as capital market exposure.