The non-performing assets NPAs of companies are likely to be increased by 160 -- 180 basis points to 6.2 6.4 per cent by March 2022, according to tighter norms for and upgradation. According to rating agency Icra, an increase of up to 80 basis points is expected in the case of housing companies, taking the NPA level to 3.8 per cent.
The potential rise takes into account a revision in norms and slippage from restructured books, with March 2021 as the base. The GNPAs were 4.6 per cent and 3.0 per cent for March 2021.
The Reserve Bank of India's clarifications on asset quality norms will mean classification as special mention account SMA and non-performing account NPA on a day-end position basis. Only after clearance of all outstanding outstanding overdues, accounts can be upgraded from an NPA to a standard asset, according to Icra.
Limitations in upgrading and a tighter NPA recognition norm would cause a spike in the near term, and a higher stickiness of going forward in the near term.
Slippages from restructured book would add to the NPA kitty, besides revision in norms. The NBFC restructured book is estimated to be higher at 20 -- 25 per cent given the prolonged stress seen in some key NBFC target segments, such as vehicle, business loans, etc. The slippages for HFCs are between 3 -- 5 per cent.
Icra said provisions made under accounting standards - IndAS - are generally higher than the RBI's rules for provisions. The provisions were further augmented because of the Pandemic. There isn't a significant impact on the near-term profitability. The pressure would be felt over the medium term if the forward flows into the NPA category are not contained.
The entities would have to tighten their internal processes to capture their collections, especially cash collections by branches, agents, etc. Nearly 40 per cent of the HFC collections are cash, according to Icra.