RBI extends deadline for NBFCs to meet new Non Performing Assets (NPA)upgradation norms.

Why in news?

• The Reserve Bank of India on Tuesday extended the timeline by six months till September 30, 2022 for NBFCs to adhere the new Non Performing Assets recognition norms.
• Earlier the regulator had set March 31 deadline for non-bank lenders to upgrade NPAs only after all arrears and principal dues are paid.

About Non-Banking Financial Companies

• A Non-Banking Financial Company (NBFC) is a company registered under the Companies Act, 1956 engaged in the business of loans and advances, acquisition of shares/ stocks/ bonds/ debentures/ securities issued by Government or local authority or other marketable securities of a like nature, leasing, hire-purchase, insurance business, chit business but does not include any institution whose principal business is that of agriculture activity, industrial activity, purchase or sale of any goods (other than securities) or providing any services and sale/purchase/construction of immovable property.
• A non-banking institution which is a company and has principal business of receiving deposits under any scheme or arrangement in one lump sum or in installments by way of contributions or in any other manner, is also a non-banking financial company.
• NBFCs lend and make investments and hence their activities are akin to that of banks; however there are a few differences as given below:
  • NBFC cannot accept demand deposits;
  • NBFCs do not form part of the payment and settlement system and cannot issue cheques drawn on itself;
  • deposit insurance facility of Deposit Insurance and Credit Guarantee Corporation is not available to depositors of NBFCs, unlike in case of banks.

About NPAs

• Non-Performing Assets is a loan or advance wherein interest or installments of principal remain overdue for a period of 90 days.

Classification of NPAs

• Substandard Assets-These are the assets which have remained NPA for a period of less than or equal to 12 months.
• Doubtful Assets– If the asset is in the substandard category for a period of 12 months
• Loss Assets– These assets are of little value, it can no longer continue as a bankable asset, there could be some recovery value.