India Equity Research Reports, IPO and Stock News Visit http://indiaer.blogspot.com/ for complete details �� ��
RBI has issued a notification dated January 17, 2011, wherein NBFCs will now be required to make a general provisioning of 0.25% of outstanding standard assets. The notification also mentions that general provisioning cannot be netted from advances, but will be shown separately as 'contingent provisions against ‘standard assets' in the balance sheet.
Most of the NBFCs we interacted with indicated that they have not been making general provisioning on standard assets (refer comments in the table below).
As far as government owned NBFCs (PFC, REC) are concerned, we believe clause 9A (pertaining to general provisioning on standard assets) will not be applicable to them as master circular “Non-Banking Financial Companies Prudential Norms (Reserve Bank) Directions, 2007” states that “the directions except the provisions of paragraph 19 shall not apply to non-banking financial company being a Government company as defined under Section 617 of the Companies Act, 1956 (1 of 1956) and not accepting / holding public deposit”.
Housing finance companies like HDFC, LIC Housing Finance are governed by NHB and do not fall within the purview of RBI’s NBFC directions. RBI’s notification, therefore, on general provisioning on standard assets will not be applicable to them unless NHB issues similar notification. However, recently implemented standard assets provisioning norms of 2% on teaser loans and 0.4% on the other loans will be sufficient to take care of the general provisioning norms in case it is applicable going forward.
n Our view
· General provisioning on standard assets is required for on-balance sheet loans and it seems is not applicable to off-balance sheet items (securitised loans).
· General provisioning on standard assets outstanding as of March 2010 can be knocked off from net worth (though tax benefit will not be available on that and auditor’s approval will be required).
· General provisioning on standard assets will be allowed to be included in Tier II capital.
· After providing for the current outstanding standard assets, incrementally 0.25% of loans disbursed will be provided for through P&L.
· In case the entire provisioning if routed through P&L hit will be in the range of 2-9% of PBT
· In case provisioning on outstanding loan book as on FY10 is provided through networth, impact will be less than 1%. For incremental loans during FY11 impact on PBT will be less than 2%.
No comments:
Post a Comment