Shadow banks brace for headwinds as tighter dud-loan norms start to bite

Most MSMEs have seen a delayed payment cycle, and spend much time and resources on the collection of dues owing to the pandemic

On November 12, 2021, the Reserve Bank of India (RBI) decided to ring in uniformity in asset classification and income recognition across all lending institutions. Shadow banks, or non-banking financial companies (NBFCs), like commercial banks, are to test non-performing assets (NPAs) on a daily basis and upgrade them to “standard assets” only when interest and principal arrears are settled by borrowers. This is going to create all manner of headaches for shadow banks and their clientele.

Says Y S Chakravarti, managing director and chief executive officer (CEO), Shriram City Union Finance: “NPA levels will go up, especially of small borrowers. They