RBI aligns NBFC loan restructuring norms with banks

The Reserve Bank of India (RBI) issued norms for loans restructured by Non-Banking Finance Companies (NBFCs), to create a level-playing field between NBFCs and other commercial banks. The new norms are based on the recommendations of the Mahapatra committee. Till now, there were no specific guidelines laying down the rules of restructuring for NBFCs.

Guidelines of new norms

• Provide more flexibility to NBFCs to deal with their stressed loans but make it mandatory for them to set aside a substantial amount of provisions to cover restructured loans.
• NBFCs, like banks, will have to set aside a 5% provision against restructured loans. For existing stock, the provisions will go up to 5% in a phased manner by March 2017.
• Presently, a majority of the NBFCs are not allowed to accept public deposits and most of their funding needs are met by borrowing from commercial banks.
• An infrastructure loan given by an NBFC will become a Non-Performing Asset (NPA), if the project fails to take off commercially within two years from the original date of commencement of commercial operations (DCCO), unless it is restructured and becomes eligible for classification as a ‘standard asset’.
• If the loan is given to a non-infra project, it will become an NPA if the borrower fails to commence commercial operations within one year from the original DCCO, even if it is regular as per record of recovery, unless the loan is restructured.
• NBFCs will have to make a provisioning of 0.25% of the loan amount for such loans.
• For commercial real estate loans, an extension of DCCO will not be considered as restructuring if the revised DCCO falls within a period of one year from the original date of commercial commencement. Such loans will be treated as standard assets without attracting higher provisioning.