Ind-AS increases provisioning pain for NBFCs amid Covid-19 pandemic

Covid-19 has led to lot of uncertainties including those pertaining to the income level of borrowers and hence, their loan repayment ability, savings habit, cash flow position of corporates

While there is little doubt that all lenders are facing the threat of higher credit risk because of the Covid-19 pandemic and the lockdown, some class of lenders, such non-banking financial companies (NBFCs), are expected to face even higher provisioning due to the relatively new accounting norm — Indian Accounting Standards (Ind-AS).

This is because provisioning under Ind-AS, known as expected credit loss (ECL), is ascertained based on the expectations of future credit losses, rather than incurred losses followed under GAAP (generally accepted accounting principles). Ind-AS became applicable to NBFCs and asset reconstruction companies from April 1, 2019.

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