Since December 2021, a certain section of Indian auto financiers has been racing against time. Specifically, auto financiers backed by vehicle manufacturers such as Tata Motors Finance (TMF), Hero FinCorp, Mahindra and Mahindra Financial Services, among others. And the reason was the corrective framework guidelines for non-bank lenders issued by the country’s central bank, the Reserve Bank of India.

Among the criteria announced was the mandate for non-banking financial companies (NBFCs) to lower their net non-performing asset (NPA) ratios to under 6%. NPA ratios are basically the number of non-performing or bad loans as a percentage of the company’s total assets. 

The guidelines weren’t likely to impair a majority of NBFCs in the country. For instance, Shriram Transport Finance, a leading financier for vehicles, had a net NPA ratio of 3.22% for the quarter ended December 2021, according to a report from credit rating agency ICRA. 

The ones that did find themselves in the dock were the financiers backed by auto companies. Among the three lenders mentioned earlier, Tata’s captive financing arm had the worst performance, with a net NPA ratio of 17.9%. Hero FinCorp’s NPA ratio stood at 6.7%, while Mahindra’s was at 6.4%. 

The three are among India’s sizeable auto financiers. For the quarter ended December 2021, TMF’s asset size stood at Rs. 34,618 crore ($4.4 billion); Hero’s was Rs 26,817 ($3.4 billion) crore in 2021. 

And even though their assets pale in comparison to the likes of pure-play financiers such as Shriram (Rs 1,17,243 crore) or Cholamandalam (Rs 78,709 crore), their strategic importance to manufacturers is underlined by the fact that a big chunk of the sales of the parent companies is routed through them. 

If left unchecked, the delinquency numbers would place Tata Motors in the highest risk category in the RBI’s corrective framework. Controls such as restrictions on expanding its branches, and a suspension on all capital expenditure except tech upgrades would soon follow.

Regulator's stick

Using a combination of indicators like the capital adequacy ratio, net NPAs, and Tier-1 capital ratio, the RBI outlined three risk categories that would qualify NBFCs for corrective action supervised by the central bank.

The main reason that RBI issued such a framework was to reduce the number of regulatory loopholes that NBFCs could capitalise on, a credit rating analyst told The Ken. And NBFCs had way more loopholes to capitalise on than bank lenders—the 6% NPA bar already exists for banks, even if only on paper. 

The RBI’s framework is supposed to kick in starting in October 2022, and while the central bank initially said it would be enforced based on March financial results, it has since extended the deadline.

AUTHOR

Jaspreet Kalra

Jaspreet covers banking, financial technology and digital assets. He is a graduate of St. Stephen’s College, Delhi and Columbia University’s Graduate School of Journalism. Jaspreet has previously worked with CoinDesk and Bank Automation News. When unoccupied with work, he can be found pretending to read hardbacks while listening to stand-up specials.

View Full Profile

Subscribe to read this story

The Ken is the only business subscription you need. Questions?

 

Premium

  • 5 original and reported longform business stories every week
  • Access to ONLY India edition
  • Close to 250 exclusive stories every year
  • Full access to over 5 years of paywalled stories
  • Pick up to 5 premium subscriber newsletters
  • 4 original and reported longform business stories each week
  • Access to ONLY Southeast Asia edition
  • Close to 200 exclusive stories every year
  • Full access to all paywalled stories since March 2020
  • Pick up to 5 premium subscriber newsletters

Rs. 2,750 /year

$ 120 /year

India Edition
Subscribe Subscribe
Most Asked For

Borderless

  • 8 original and reported longform business stories each week
  • Access to both India and Southeast Asia editions
  • Close to 400 exclusive stories every year
  • Full access to over 5 years of paywalled stories across India and Southeast Asia
  • Unlimited access to all premium subscriber newsletters
  • Visual Stories

Rs. 4,200 /year

Subscribe
 

Echelon

  • 8 original and reported longform business stories each week
  • Access to both India and Southeast Asia editions
  • Close to 400 exclusive stories every year
  • Full access to over 5 years of paywalled stories across India and Southeast Asia
  • Unlimited access to all premium subscriber newsletters
  • Visual Stories
  • Bonus annual gift subscription
  • Priority access to all new products and features

Rs. 8,474 /year

Subscribe
Or

Questions?

What kind of subscription plans do you offer?

We have three types of subscriptions
- Premium which gives you access to either the India or the Southeast Asia edition.
- Borderless which gives you complete access to The Ken across both editions
- Echelon which gives you complete access to The Ken across both editions along with a bonus gift subscription

What do I get if I subscribe?

The Premium edition gives you access to stories in that edition along with any five subscriber-only newsletters of your choice.

The Borderless and Echelon subscription gives you complete access to The Ken across editions and unlimited access to as many newsletters as you like.

What topics do you usually write about?

We publish sharp, original and reported stories on technology, business and healthcare. Our stories are forward-looking, analytical and directional — supported by data, visualisations and infographics. We use language and narrative that is accessible to even lay readers. And we optimise for quality over quantity, every single time.

Our specialised subscriber-only newsletters are written by our expert, award-winning journalists and cover a range of topics across finance, retail, clean energy, cryptocurrency, ed-tech and many more.

How many newsletters do you have?

We are constantly adding specialised subscriber-only newsletters all the time. All of these are written by our team of award-winning journalists on a specialised topic.

You can see the list of newsletters that we publish over here.

Does a Premium subscription to your Indian edition get me access to the Southeast Asia edition? Or vice-versa?

Afraid not. Each edition is separate with its own subscription plan. The India edition publishes stories focused on India. The Southeast Asia edition is focused on Southeast Asia. We may occasionally cross-publish stories from one edition to the other.

We recommend the Borderless or the Echelon Plan which will give you access to stories across both editions.

Do you have a mobile app?

Yes! We have a top-rated mobile app on both iOS and Android which allows you to read on-the-go and has some amazing features like the ability to bookmark stories, save on your device, dark mode, and much more. It’s really the best way to read The Ken.

Is there a free trial?

You can sign up for a free account to experience The Ken and understand our products better. We’ll send you some free stories and newsletters occasionally, and you can access our archive of previously published free stories. You can stay on the free account as long as you’d like.

The vast majority of our stories, articles and newsletters can be accessed only by a paid subscription.

Do you offer any discounts?

Sorry, no. Our journalism is funded completely by our subscribers. We believe that quality journalism comes at a price, and readers trust and pay us so that we can remain independent.

Do you offer refunds?

No. We allow you to sample our journalism for free before signing up, and after you do, we stand by its quality. But we do not offer refunds.

I am facing some trouble purchasing a subscription. What can I do?

Just write to us at [email protected] with details. We’ll help you out.

I have a few more questions. How can I reach out to you?

Sure. Just email us at [email protected] or follow us on Twitter.