India’s central bank is unlikely to grant “shadow banks” exemptions from stricter bad-loan guidelines that will go into effect, effectively ending a benefit that non-bank financial institutions have had over traditional banks.
Non-banking financial corporations (NBFCs) have asked the Reserve Bank of India to exempt smaller loans from the rules that will go into effect next month, according to those that apply to banks.
According to the most recent RBI data, India had 10,000 shadow banks as of March 2021, with assets worth Rs 54 trillion ($680 billion), or roughly one-fourth that of the banking sector.
Several of the most significant shadow banks are listed on stock exchanges.
Shadow banks will be required to recognise bad loans on a daily basis, rather than monthly, as some currently do. Non-performing loans can only be upgraded to performing after all arrears have been paid.
“We’ve been meeting with the RBI on a regular basis and have requested several relaxations, which they’ve denied,” an industry source who has attended these meetings with the central bank said.
The central bank did not respond immediately to a request for comment.
Shadow banks had also asked the RBI to lower the threshold for taking control of securities pledged against a loan, managing or selling them to recover debts.
“Aside from the short-term increase in bad loans, if NBFCs do not strengthen their collection practises and enforce customer discipline, it can lead to elevated stressed loans for a long time, resulting in a significant impact on their balance sheet,” said credit rating agency ICRA analyst Anil Gupta.