Non-Banking Financial Companies (NBFCs) have asked them reserve Bank of India To exempt small loans from rules that will take effect next month that are in line with those covering banks.
There were 10,000 shadow banks in India as of March 2021, latest reserve Bank of India Available data, with 54 trillion rupees ($680 billion) or about a quarter of the banking sector’s wealth. Many large shadow banks are listed on stock exchanges.
Under the new norms, shadow banks will have to identify bad loans on a daily basis instead of monthly, as some do now. Non-performing loans can be upgraded only after the borrowers have cleared all the dues.
An industry source who attended these meetings with the central bank said, “We have been meeting RBI regularly and asked for several relaxations, which they have refused.”
The central bank did not immediately respond to a request for comment.
Shadow Bank wanted to be free of loans of up to 20 million rupees ($250,000), according to a document reviewed by Reuters, and also asked for an extension to comply with the new rules, easing some accounting requirements.
“We expect NBFCs to see an 80-100 basis-point increase in bad loans across the board with the new regulations,” said the head of a shadow bank, who asked not to be named. “Some firms may even see growth of up to 200 basis-points.”
Industry executives say this could boost some institutions’ bad loans enough to subject them to additional regulatory requirements and force them to earmark more cash for the provision of non-performing loans. .
Shadow banks had also asked the RBI to lower the limit on bad loans, which would not require court approval for them to take control of the securities pledged against the loan, manage or sell them to recover dues.
“Apart from the short-term rise in bad loans, if NBFCs do not strengthen their collection practices and enforce customer discipline, it could lead to increased stressed loans in the long run, resulting in increased exposure to bad loans,” the analyst said. There is a significant impact on the balance sheet,” the analyst said. Anil Gupta at Credit Rating Agency
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Arguing that their small average loan size put them at a disadvantage for banks, shadow banks in July granted this for loans of more than 100,000 rupees ($1,250) under the Securitization and Reconstruction of Financial Assets and Security Interest Act. asked permission. According to a document seen by Reuters, the current Rs 2 million.
But the RBI is likely to reject this request as well, the sources said.