According to Crisil Ratings, Gross Non-Performing Assets (GNPAs) of housing finance companies (HFCs) has increased to 3.3% by December end, compared to 3% in September, attributable to Reserve Bank of India’s (RBI) clarification on recognition and calculation of Non-Performing Assets (NPAs), rather than any real mark-down in asset quality. Moreover, without the change in the rule, the portfolio quality of HFCs quarter-on-quarter and on a like-to-like basis would have shown an improvement of 40 basis points (bps). RBI deferred the implementation of the revised norms about the upgradation of NPAs is likely to have less impact because most HFCs have already switched to the new way of calculating. However, they are well-positioned to improve their GNPA ratio to 3% by the end of FY22. There are two RBI clarifications, on-daily stamping of accounts and upgradation of NPAs. Senior director and deputy chief officer of Crisil Ratings, Krishnan Sitaraman, said that affordable HFCs had seen a higher 140 bps impact due to the revised recognition norms. The borrowers have confined financial flexibility and volatile cash flows. HFCs are pushing to change borrower behaviour and reduce additional slippages into GNPAs. Director of Crisil Ratings, Subha Sri Narayanan, said many HFCs have already switched to the revised norms and are unlikely to revert to the previous regime. The increase in GNPAs for many HFCs is not very useful and is more of an accounting, rather than an economic, impact. He added that since HFCs follow Indian Accounting Standards (IND-AS), provisioning levels are higher compared to the income recognition, asset classification and provisioning (IRACP) requirements. It is expected that the overall GNPAs for this sector will settle at 3.0% by March 2022. Image Source Also read: Housing finance companies to witness 8-10% surge in FY22