New Delhi: The Reserve Bank of India's recent notification on income recognition, asset classification, and provisioning norms for banks, non-banking financial institutions, and all-India financial institutions may lead to a sharp spike in the non-performing assets (NPAS) for non-banking finance companies, ICRA said.

On November 12, the central bank had said that the classification of special mention accounts and non-performing accounts should mance the tax be done on a day-end category only after clearance of all outstanding overdue.

These new norms will impact on earnings performance of such entities which would be visible over the next few quarters if the forward flows into the NPA category are not contained, the rating agency said.

"Stricter NPA up-gradation requirement is likely to push-up the NBFC and HFC (housing finance companies) NPAs of March 2022 by about 160-180 basis points and 60-80 basis points, respectively, over March 2021 levels," ICRA'S Vice President Financial Sector Ratings, A.M. Karthik said.

Regarding the up-gradation of NPAs to a standard category, it is to be done only after the entire arrears are cleared.

"While banks will not be impacted by this as they have been following this norm, NBFCs normally have been upgrading an NPA account even with partial payments of the outstanding overdue, as long as the total overdue on the reporting date were for less than 90 days," the agency said.

Going forward, movement to the standard category for NBFCs NPAS would be impacted as their get borrowers generally have limited abilities to clear all dues, it held