NBFCs report higher GNPAs in December quarter

By Piyush Shukla & Ruchit Purohit

Major non-banking finance companies (NBFCs) reported an increase in their bad loans during the October-December quarter. Gross non-performing assets (GNPA) of NBFCs rose between 65 bps and 131 bps year-on-year (YoY) during the quarter due to the implementation of the Reserve Bank of India (RBI)’s November 12 circular on loan upgradation, data compiled by FE show.

Housing Development Finance Corporation (HDFC) saw its gross non-performing asset (GNPA) ratio rising to 2.32% as on December-end, up 32 bps sequentially and 65 basis points higher than the year-ago period. HDFC said of the total reported gross bad loans of Rs 12,419 crore as on December end, Rs 2,746 crore comprised loans which were less than 90 days past due. “While there has been an increase in the reported NPLs, there has been no financial impact and credit costs have reduced,” HDFC said.

According to RBI’s November 12 circular, loan accounts classified as NPAs may be upgraded to ‘standard’ assets only if entire arrears of interest and principal are paid by the borrower. If payments are not received on the due date, loans must be tagged as NPA on the same day as a part of day-end process, instead of NPA classification as on the period-end reporting.

Shriram Transport Finance’s GNPA ratio rose to 8.4% as on December end, higher by 58 bps than September end and 129 bps on a Y-o-Y basis. “Pursuant to the RBI circular dated November 12, the company has revised its process of NPA classification. Had the company followed the earlier method, the profit before tax for the quarter and nine months ended December 31, 2021 would have been higher by Rs 350 crore,” the non-bank lender said in its October-December investor presentation.

Bajaj Finance’s GNPAs rose 118 bps on a yearly basis to 1.73% as on December end, while Mahindra & Mahindra Finance saw its gross bad loans rising 131 bps YoY to 11.3%. L&T Finance reported its gross bad loans at 5.91%, up 79 bps YoY.

While there has been a rise in reported gross bad loans of NBFCs, analysts expect the asset quality to improve going ahead. “Asset quality of NBFCs has deteriorated largely due to NPA circular adhering to IRAC norm where broad-level rise has been by 80-250 bps across players. However, this has not led to a rise in provisions as Ind-AS provisions are higher than IRAC requirement,” Jinay Gala, associate director at India Ratings and Research, told FE.

He said NBFCs’ asset quality could improve in the next fiscal in the absence of newer waves of Covid-19. However, slippages may arise from NBFCs’ restructured pool of assets and from loans extended under the emergency credit line guarantee scheme.