Moody's expect bad loans to rise in finance companies

MUMBAI: The asset quality of non banking finance companies may deteriorate due to revised provisioning norms, according to a report by global rating company Moody's Investors Service.

The new recognition norms, which requires finance companies to make provisions for bad loans in-line with the definition used by banks, will push up reported non performing loans by 80-100 basis points over the next 12 months, the report said.

Also, this change in norms will mean declining profitability for many NFBCs. The additional credit provisions needed to meet the tighter norms will dent their return on assets by 20-30 basis points, it added.

Moody's said that funding will remain a credit weakness, as regulatory restrictions on retail deposit mobilization will force finance companies to rely on wholesale sources of funding. However, rating company expects asset quality to stabilise in the next 12 months.