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NBFCs' Low NPA Numbers May Mask Bigger Loan Losses, Investors Must Track Write-offs: Shenoy
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CNBC TV18•29-09-2026, 16:28
NBFCs' Low NPA Numbers May Mask Bigger Loan Losses, Investors Must Track Write-offs: Shenoy
- •Deepak Shenoy, CEO of Capitalmind Mutual Fund, warns that low gross non-performing asset (NPA) numbers in NBFCs may not fully reflect loan book health, urging investors to track write-offs.
- •Large write-offs can artificially lower reported gross NPAs, making the actual level of bad loans appear much smaller than it is.
- •Shenoy explains that technical write-offs remove bad loans from the NPA book, reducing the reported gross NPA figure; for example, writing off ‘100 crore from ‘120 crore of bad loans on a ‘1,000 crore book makes NPAs appear as 2% instead of an effective 12%.
- •He suggests investors should assess write-offs against the appropriate loan book vintage, such as the previous year's book for short-term NBFC loans or two to three years prior for long-term products like home loans.
- •Shenoy advocates for an additional measure in financial reports: write-offs as a percentage of a previous year's book, to provide a clearer picture of loan book quality.
Key Questions Answered
Low gross NPA numbers can conceal the true level of bad loans because large technical write-offs are removed from the NPA book, making reported defaults look much smaller than they actually are.
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