Gross non-performing assets (NPAs) may increase around 100 basis points (bps) if the proposed norms on recognition of bad loans are implemented. But the immediate impact will be a hike in standard asset provisioning from 25 bps to 40 bps, which will reflect in our books, says Ramesh Iyer, MD & CEO of Mahindra Finance in an interview with Aswathy Varughese. Excerpts:
How has been the credit growth so far and how does the business look ahead?
Till September, we have logged a 30% plus growth. The festival season was good and we expect the last quarter to be good, too. In this quarter, South would not have done well because business there picks up from January. Buoyancy continues in the rural market, volumes are positive and we are expecting interest rates to come off at least in the last quarter. On the commercial vehicle side, I feel that any drop in interest rate would help volumes.
What is your take on the proposed capital adequacy norms for non-banking finance companies (NBFCs)?
We are particularly comfortable after the current QIP and our Tier I capital adequacy is upward of 20%. I do not think we are fussy about the new regulatory change. As an industry, we think it would bring some pressure on raising capital to 10% of requirement.
Will new NPA norms affect margins?
They have given us some breathing room to comply with the new NPA norms. By that time all of us would have taken adequate process correction and policy control that we would not suffer on margins. If you know that two years later you need to make provision for 120 days then you will improve the collection efficiency and bring better control.
What are your suggestions to the regulator on the proposed changes?
All assets should not be considered under the same level for provisioning. For commercial vehicles people may ask for different provisioning because they have economic cycles. Also, it is too early to increase the standard provisioning norms to 40 bps. We expect support on the development side too — long-term funds from banks and eligibility for external commercial borrowing. It would be great if they can set up a refinancing body for NBFCs.