Sarfaesi cover for NBFCs credit positive: Icra

Extending coverage of the Sarfaesi Act to NBFCs is credit positive for such lenders and will improve quality of mortgage backed loans, ratings agency Icra said today.
The Finance Ministry last month extended the provisions of the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest (Sarfaesi) Act to non-banking financial companies (NBFCs) having assets of more than Rs 500 crore as per their last audited balance sheet.
The notification included a list of 196 NBFCs to which the Act would be applicable.
"Icra is of the opinion that the above development is a credit positive for retail focussed NBFCs, especially those which extend mortgage backed loans," it said in a note.

As on March 31, 2016, about 19 per cent of the total retail NBFC credit of Rs 5 lakh crore was extended as retail loans against property (17 per cent) and housing loans (2 per cent).
The retail loan against property (LAP) and SME credit (property backed and non-property backed) by NBFCs together stood at about Rs 1.2 lakh crore as on March 31, 2016.
It said the fear of action under Sarfaesi Act is likely to be a deterrent to wilful defaulters, limit the possibility of extended litigation by defaulting borrowers and result in faster resolution of delinquencies.
"Icra expects the access to Sarfaesi to strengthen NBFCs' ability to contain lifetime losses in this segment. At the same time, if the credit costs were to reduce, there could be some moderation in the lending rates by NBFCs, which would benefit the borrowers going forward," it added.