The non-banking finance company (NBFC), Tata Capital, has said that the Reserve Bank of India's proposed modified guidelines on NBFCs could have a negative impact on their profitability and increase the interest rates on loans.
Talking about it, the Chief Financial Officer of Tata Capital, Mr. Govind Sankaranarayanan said, "Overall, in the short-run it will impact NBFCs' profitability and our ability to lend." However, he also added that the new guidelines were good for the industry in the long run.
Reportedly, the proposed guidelines have been framed based on the recommendations made by a committee headed by Usha Thorat (ex- RBI deputy governor), which was announced last month. The new norms bring NBFCs at an equal level with commercial banks. On this, Sankaranarayanan says, "Only on the disadvantages side you are going to bring it (banks and NBFCs) at par, and thus it becomes difficult. Conceptually, one cannot object to the idea of an NBFC and a bank being similar. But the playing field needs to be uniformly leveled."
The proposed norms also seek to reduce the time period for classifying an NBFC's loan as a non-performing asset (NPA) from the existing 180 days to 90 days. It also seeks an increased capital adequacy and a phased augmentation in provisions for standard assets, from the current 0.25 percent to 0.40 percent.
Sankaranarayanan further said, "All these increase your cost, so if your cost jumps, you will have to pass them over to your customers... to some extent, lending costs will go up by a bit and to some extent you will not lend to some people."