Industry bodies urge RBI to scrap daily loan asset classification norm

rbi, reserve bank of india, confederation of indian industries, npa, npas

Top industry bodies are seeking the scrapping of the Reserve Bank of India’s direction on loan asset classification by non-banking finance companies (NBFCs) on a daily basis as the rule could cripple the small and medium enterprises segment that is just limping back to normalcy after the Covid impact.

The Confederation of Indian Industries (CII) and the Associated Chambers of Commerce and Industry of India (Assocham) are writing to the regulator to review the norm which asks NFBCs to classify loans based on daily repayments.

In their letter to the RBI the industry bodies have argued that the strict day-to-day payments based classification would be hard to implement for the borrowers serviced by them as their cash flows and supplies are haphazard. These borrowers make lump sum payments.

“Our main point is that we mostly serve small borrowers, truck drivers, light commercial vehicles owners or even farmers. These people do not have a steady income stream like salaried people,” said a person familiar with the development. “As a result, payments do not often come on or before the due date, so we give them some leeway, like paying before the end of the month. The strict classification on par with banks will derail this system and could put many borrowers in trouble.”

rbi, reserve bank of india, confederation of indian industries, npa, npas

In a clarification earlier this month, RBI said loan accounts have to be classified as NPAs unless the entire arrears of interest and principal are paid by the borrower. NBFCs have also been asked to specifically mention the exact due date of loan accounts and the break-up of the principal as well as interest. These norms have now brought loan classification by NBFCs on par with banks and is yet another step by the RBI to tighten regulations on NBFCs although they serve a different set of clients. The changes will be effective from next fiscal year.

Crisil said that the impact of the new RBI norms on unsecured loan NPA is expected to be in the range of 1.5% to 3%, for MSME finance it is expected to be in the range of 1% to 3%, and 1% to 2% for vehicle finance.

Industry leaders are hoping that the central bank will at least give them some more time or introduce the new norms in a gradual or phased manner.

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