The Reserve Bank of India (RBI) on Tuesday extended the deadline for non-banking financial companies (NBFCs) to comply with new asset classification norms issued on November 12. Non-bank lenders will now be allowed to move to the new rules for recognising bad loans by September 30, 2022, as against March 31, 2022.

“Paragraph 10 of the (November 12) Circular stipulates that loan accounts classified as NPAs (non-performing assets) may be upgraded as ‘standard’ asset only if entire arrears of interest and principal are paid by the borrower. NBFCs shall have time till September 30, 2022, to put in place the necessary systems to implement this provision,” the central bank said in a notification.

The guidelines seek to harmonise income recognition and asset classification practices at banks and NBFCs. Analysts had predicted that the rule on upgradation of bad loans could lead to a rise in NPAs reported by some NBFCs. According to sector experts, most NBFCs have for long followed a practice of upgrading gross stage-3 loans, or NPAs, to gross stage-2 loans — or special mention account (SMA)-2 — upon payment of just a single instalment.

Earlier, NBFCs had sought an extension to comply with the terms of the November 12 circular as applied to micro, small and medium enterprises (MSME) accounts.

The RBI has also issued clarifications in response to queries it had received. The definition of ‘out of order’, it said, shall be applicable to all loan products being offered as an overdraft facility, including those not meant for business purposes and/ or which entail interest repayments as the only credits.

The ‘previous 90 days period’ for determination of ‘out of order’ status of a cash credit/ overdraft (CC/OD) account shall be inclusive of the day for which the day-end process is being run. In case of borrowers having more than one credit facility from a lending institution, loan accounts shall be upgraded from NPA to standard asset category only upon repayment of entire arrears of interest and principal pertaining to all the credit facilities.

The circular does not make any changes to the requirements related to reporting of information to CRILC, which will continue to be governed in terms of extant instructions for respective entities, the central bank said. It also does not interfere with the extant guidelines on implementation of Ind-AS by NBFCs.

Unlike banks, NBFCs follow the Ind-AS guidelines, under which delinquent loans are classified as gross stage-1 (loans overdue by up to 30 days), gross stage-2 (loans overdue between 31 and 89 days) and gross stage-3 (loans overdue for over 90 days). There is no categorisation of standard and bad loans for NBFCs under this system.