The Reserve Bank of India (RBI) came out with final guidelines for the non-banking finance companies (NBFCs) with regard to the early detection and recovery of bad loans. These guidelines will be effective from April 1. Before a loan account turns into an NPA, NBFCs will be required to identify incipient stress in the account by creating a sub-asset category ‘special mention accounts’ (SMA). The RBI had earlier set up a Central Repository of Information on Large Credits (CRILC) to collect, store, and disseminate credit data to lenders. All systemically important NBFCs shall be required to report the relevant credit information on a quarterly basis to CRILC. The apex bank has warned that if NBFCs fail to report SMA status of the accounts to CRILC or resort to methods with the intent to conceal the actual status of the accounts or evergreen the account, they will be subjected to accelerated provisioning for these accounts and other supervisory actions. If a lender who has agreed to loan restructuring under the corrective action plan (CAP) by joint lender forum (JLF) and is a signatory to the Inter Creditor Agreement (ICA) and Debtor Creditor Agreement (DCA) but changes the stance later on, or delays or refuses to implement the package, it will also be subjected to accelerated provisioning requirement on exposure to this borrower classified as an NPA. The RBI also asked the board of directors of NBFCs to take all the necessary steps to arrest the deteriorating asset quality in their books and to focus on improving the credit risk management system. NBFCs should carry out their independent and objective credit appraisal in all cases of lending and must not depend on credit appraisal reports prepared by outside consultants, especially the in-house consultants of the borrowing entity. It also permitted NBFCs to sell NPAs to other banks, financial institutions or NBFCs without any initial holding period.

(NDTV)