The Supreme Court judgement ruling out any further extension in loan moratorium that was announced in the wake of the coronavirus-related lockdowns last year is unlikely to result in a huge jump in non-performing assets, feel non-banking finance companies (NBFCs).
While banks and NBFCs could not change the asset classification of a loan during the moratorium period, lenders had made adequate provisions already for any likely NPAs, said officials at the Finance Industry Development Council.
“We don’t expect NPAs would rise substantially and people have made sufficient provisions for it, right from a small company to a large company. So, it is not likely to impact the industry because NPAs have been provided for at least as a provision,” said Ramesh Iyer, chairman of FIDC.
Iyer, who is also the vice-chairman and MD of Mahindra Finance, said some of the customers that may have availed of the moratorium would have anyways started repaying as the market conditions have improved.
In its ruling, the Supreme Court also waived off compound interest for all borrowers, and so any such amount already collected will have to be refunded. Earlier, the government had announced such a relief for borrowers having loans up to Rs 2 crore only. Whether the government will bear the additional expenses as well or the banks and NBFCs will have to issue the refunds from their pockets is not yet clear.
Iyer said that not too many loans that NBFCs provide are above Rs 2 crore and therefore the impact of compound interest waiver would be minimal on the shadow banking sector.
“We do believe that there would be a support that would come towards an NBFC if we will have to give up something,” he felt.
The lockdowns announced last year had a huge impact across businesses. However, with the economy on the mend, the worst was behind the industry, say FIDC officials.
“Real demand is coming back, especially in specific sectors like infrastructure and that will have a knock-on effect on various other sectors. If there is no big surge in COVID-19 numbers, which we have unfortunately seen in the last few days, if we do get on top of that then financial year 2022 should offer us a lot to cheer about,” said T.T. Srinivasaraghavan, FIDC director and MD of Sundaram Finance.
Meanwhile, the FIDC wants the Reserve Bank of India to take another look at the proposal to raise the minimum capital requirement for small NBFCs to Rs 20 crore from Rs 2 crore. FIDC officials said that while it was necessary to raise the capital requirements, it should be done gradually. The industry body has also suggested that in line with the existing guidelines for housing finance companies, the minimum capital requirement should be kept at Rs 10 crore and companies should be given sufficient time to reach that level.