Asset financiers request RBI to reconsider NPA norms

Central bank cut down NPA recognition period from six months to three months

Federation of Indian Hire Purchase Associations (FIHPA), apex body of assets financier associations, would pursue its request with the Reserve Bank of India (RBI) to reconsider its decision to cut down the non-performing assets (NPAs) recognition period from six months earlier to three months.

The federation is also contemplating at expanding its activities to various types of financiers including the pawn brokers, subject to consensus from various member associations.

While the norms for NBFCs, were that an asset is classified as NPA when it remains overdue for six months or more for loans and 12 months or more in case of lease rental and hire purchase instalments, compared with 90 days for banks. In 2014, the RBI has came up with new norms for NBFCs seek to reduce the duration in a phased manner so that the norms for NBFCs are at par with that of banks by 2018.

"This will have a serious impact on our business. Unline in Banking sector, the repayments in our case is that the borrower will repay interest and part of the principal amount every month. So default in repayment for two or three months cannot be treated as bad loan" said T R Achha, secretary general of (FIHPA), in the sidelines of FIHPA's 25th national convention in Chennai.

"If this is implemented, almost 50% of our accounts will become NPA. The income from NPA cannot be recognised and we also have to make higher provisioning, which will impact us. We have been raising the issue with the authorities and will continue to approach RBI on this," he added.

The FIHPA is an apex body of 20 associations of financiers, especially in lending for vehicles. These associations, put together, has around 5,000 members and according to the calculation of the Federation, has an investment of roughly around $300 billion. There are around one lakh financiers in the country in the sectors which the Federation cover at present and together would have an investment of around $1 trillion, he said.

The Federation is in discussion with its member associations on a plan to expand its activities to other financiers including those who are lending against gold, property and other assets.

Changing trends

R Seshasayee, vice chairman of Ashok Leyland, who delivered the key note address said that the industry should use the challenges as opportunity to grow. The challenges including the regultory challenges, and the loss of emotional connect between the stake holders in the industry owing to the advent of digitisation can be an opportunity to grow.

He added that models such as a peer to peer funding model where lending based on a purchase guarantee by another corporate company can be an option in terms of funding for these hire purchase companies and those changes could take place in another five to seven years, in the industry.

Umesh Revankar, president of the Federation, said that disruptive changes in the vehicle technology and in the IT solutions used to run the business and newer method of funding such as the INR Bond and External Commercial Borrowings are the way forward for the industry. "With the data of each individual, being linked to their mobile numbers, could make the peer to peer business a reality in three to four years," he added.

The financiers, in this changing times, has to focus on investing in identifying talent and building teams and customer relatioinship, among others, he said.