Mumbai: Ratings agency Crisil Wednesday said the Reserve Bank's recommendations on NBFCs will structurally strengthen the players but the increased provisioning norms may affect the profitability, as average return on assets will come down by up to 30 basis points.
"There could be short-term adverse impact on NBFCs' profitability the average return on assets could drop by 25 to 30 basis points (bps), driven by increased provisioning," the agency said in a note released Wednesday.
Additionally, the recommendations, if implemented, will result in a drop in the capital adequacy ratios of the non-bank finance companies (NBFCs) lending to the volatile capital markets and commercial real estate segment by up to 3 percent.
A change in the asset classification norms will also result in a jump in the non-performing asset ratios, the report said.
"The change in the asset classification norms will result in a significant increase in NBFCs' reported gross NPA ratios. The gross NPA ratio for the sector, which was around 2.8 percent as of March 2011, would become 4.8 percent," Crisil Ratings Director Pawan Aggarwal said.
However, the agency also said it does not expect any material impact on NBFCs' credit risk profiles following this.
A Reserve Bank panel advocated tough new norms for NBFCs with the aim to strengthen the regulatory and supervisory framework for such lenders.
Besides prescribing threshold limits, the Working Group headed by former RBI Deputy Governor Usha Thorat, suggested that NBFCs be subjected to the same regulations as banks with regard to provisioning norms and lending to stock brokers and merchant bankers.
"The sector will emerge structurally stronger over the longer term and enhance stakeholders' confidence," Crisil report added.
First Published: Wednesday, August 31, 2011, 20:56