Non-banking financial companies are now consistently moving towards weekly reporting of credit bureau i.e., faster credit bureau reporting, as revealed by industry executives. NBFC has taken this move in response to the step taken by RBI i.e. Reserve Bank of India for the scrutiny of cases, where lenders extended their fresh loans with existing overdue to the borrowers.
Lenders have said that faster reporting cycles will reduce information gaps, which previously allowed borrowers with payment delays to get credits from diverse lenders. Credit bureau reports, which suffered a lag previously for a month, has now moved to fortnightly updates with many lenders shifting voluntarily to weekly reports.
Bridging the Information Gap-Objective of the NBFCs
The financial regulators have even asked lenders to adopt the board-approved policies to govern the situations, where banks and companies extend the loans to borrowers who have overdue accounts somewhere else.
The chief financial officer of a Non-Banking Financial Corporation said, “RBI may not stop lenders to disburse loans in case of borrowers with overdue accounts. However, it insists NBFCs to adopt the right board policy by showing a valid reason for sanctioning the loan to a borrower who already possesses an overdue with any other lender.”
Industrial executives associated with various non-banking financial corporations have said that lenders often avoid borrowers who have default slipped accounts. According to the definition given by the Chief Risk Officer of a non-bank lender, if the payment due of an account extends for more than 90 days, no lender (whether a bank or an NBFC) provides funds or even intends to give funds.
In contrast, lenders may evaluate the specific cases in case of relatively small payment delays. In some instances, borrowers who have an overdue of 30 days to 50 days are considerable to provide credits by lenders. However, borrowers should mention a valid reason for the payment delay and the type of the product offered to them.
Executives also said that the delays may take place sometimes due to certain operational issues, like mis-presentation of payments or cheques instead of the borrowers’ stress. Many NBFC credit policies may consider technical bounces if the borrower clears the installments within a mentioned period.
Lenders often consider the credit bureau data they obtain from different agencies to assess the obligation of borrowers before sanctioning their loans. However, many other non-banking financial corporations supplement the obtained credit bureau scores with underwriting scorecards and internal risk models.
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Delinquency Management-Second Objective of the NBFCs
NBFCs to consider the regulatory focus when delinquencies at the early stage were relatively high in the non-banking financial sectors. According to the data obtained from CRIF High Mark, NBFCs have risky portfolios of about 3.7% in the bucket of 31 days to 180 days as compared to 1.7% and 2.6% for private and public sector banks.
Executives of the non-banking financial companies even said that the regulatory focus is also intended to prevent regularizing the stressed accounts temporarily by extended the fresh credits. Even though banks and RBIs have scrutiny, industrial executives solely believe that loan evergreening or large-scale lending is of less significant. Borrowers dealing with genuine financial stress may start defaulting across diverse loans, which further makes long-term loan repayment critical.
Strict policies combined with faster credit bureau reporting may improve credit discipline and even help NBFCs to reduce their credit costs gradually by simply limiting exposure to borrowers who show early signs of stress.
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