Kinara Capital CFO says need to change NPA norms for smaller ticket size loans

Aiswarya Ravi, CFO, Kinara Capital

Standardizing Asset Classification

“Indian Income tax provisions tax on actual receipt of interest income from non-performing assets (NPAs). However, NBFCs subjected to the Ind AS regulations, have to recognise the interest income on the net carrying value of a certain category of loans in the profit and loss account, whether or not the company has received or realised such interest income. Therefore, there is a need to change the NPA norms for smaller ticket size loans, wherein the recognition of NPA is not done day wise and the standardization of assets need not wait till the dues are settled in full. This is a very practical issue for small time borrowers as clearing of the entire dues in one segment is very difficult with the amount of liquidity which gets maintained at this borrower class level. This negatively impacts financial inclusion, particularly of micro MSMEs, who often have a short 2-3 month cash flow run. Standardizing the asset classification process would reduce the pressure on this sector, while enabling last-mile fintech NBFCs to bring more entrepreneurs into the financial inclusion fold.”