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Business News/ Industry / Banking/  Large NBFCs well placed to meet RBI's latest provisioning norm: Crisil
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Large NBFCs well placed to meet RBI's latest provisioning norm: Crisil

Most large NBFCs follow Ind AS and have also significantly increased their provisioning buffer since March 2019

The RBI guidelines for provisioning are to be maintained for standard assets by upper layer NBFC (Shutterstock) (HT_PRINT)Premium
The RBI guidelines for provisioning are to be maintained for standard assets by upper layer NBFC (Shutterstock) (HT_PRINT)

The Reserve Bank of India’s (RBI) guidelines on category-wise standard asset provisioning announced on Monday are not expected to be onerous for most non-banking financial companies (NBFCs) in the upper layer as their provisioning is comfortably high, ratings agency Crisil said on Thursday.

In an impact assessment of provisioning norms undertaken by the agency, it said that upper layer NBFCs comply with Indian Accounting Standards (Ind AS) for preparation of financial statements. Typically, provisioning under gross stage 1 and gross stage 2 here is higher compared with the RBI’s Income Recognition, Asset Classification and Provisioning (IRACP) norms.

The guidelines for provisioning are to be maintained for standard assets by upper layer NBFC. These have been specified by category of assets financed, and ranges from 0.25% to 1%. For a specific category of housing loans, say those extended at teaser rates, the provisioning rate is higher at 2%.

The guidelines will be effective from 1 October, 2022.

Krishnan Sitaraman, senior director and deputy chief ratings officer, CRISIL Ratings, “Most large NBFCs follow Ind AS and also had significantly increased their provisioning buffer since March 2019. Hence, they are well placed to meet the new RBI guidelines. The aggregate Gross Stage 1 and Gross Stage 2 provisioning maintained by leading NBFCs range from 1.4% to 3.9%. Similarly, for most housing finance companies, it ranges from 0.8% to 1.8%."

The guidelines are a follow-up to the scale-based regulation that the RBI had issued on 22 October, 2021. This would also take effect from 1 October, 2022. According to this, the regulatory structure for NBFCs will comprise four layers based on size, activity, and perceived riskiness.

These are base, middle, upper and top layers. This top layer is unlikely to see any company at present.

NBFCs in upper layer for which these provisioning guidelines are applicable will be those carrying potentially large systemic spillover risks that could impact financial stability.

Overall, around 25-30 NBFCs are expected to be classified as upper layer.

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ABOUT THE AUTHOR
Subhash Narayan
Subhash is the infrastructure editor at Mint and tracks the momentous developments taking place in the space that is fast changing the Indian landscape. He feels that reporting has been a passion that provides the necessary adrenaline rush and keeps you going.
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Published: 10 Jun 2022, 09:02 AM IST
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