Tata Capital says new norms to eat into bottom lines of NBFCs

Tata Capital

Tata Group's finance subsidiary Tata Capital has expressed reservations about the Reserve Bank's proposed changes in the norms governing NBFCs, saying the move will negatively impact profits and raise lending rates.

"Overall, in the short-run it will impact NBFCs' profitability and our ability to lend," Tata Capital Chief Financial Officer Govind Sankaranarayanan told PTI. He, however, added that the new norms are good in the long-term.

The draft norms, based on the recommendations by the Usha Thorat (Former RBI deputy governor) committee and released last month, seek to bring NBFCs at par with commercial banks.

Stating that banks operate with benefits like recovering money under the Sarfesi Act and having access to low-cost deposits, he said, "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 levelled," Sankaranarayanan said.

Among other recommendations, the RBI wants to cut the time period for classification of an NBFC's account into an NPA in 90 days from the present 180 days, higher capital adequacy and also a phased jump in the provisioning for standard assets to 0.40 per cent from the present 0.25 per cent.

"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," the Tata Capital official pointed out.

He further stated that the weaker than the best rated borrowers residing in small towns, availing money for commercial vehicles and farm equipments and small businesses -- traditional businesses for NBFCs -- will suffer in this case.

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