Stage 3 in NBFCs represents highly delinquent or defaulted loans (Non-Performing Assets - NPAs) where payments are overdue for more than 90 days. Under Ind AS guidelines, these are considered credit-impaired, requiring high, lifetime Expected Credit Loss (ECL) provisions. Stage 3 loans indicate significant credit risk and reduced borrower repayment capacity.
What are stage 3 assets in NBFC? Gross stage 3 assets in non-banking finance companies (NBFC) are loans which have been overdue for more than 90 days. As NBFC follow Indian Accounting Standards (Ind AS), they have to classify bad loans in three categories or stages.
Loans are sorted into stages, where Stage 1 comprises performing loans, Stage 2 underperforming loans that have seen a significant increase in credit risk and Stage 3 credit-impaired loans (see, for example, “Snapshot: Financial Instruments: Expected Credit Losses”, IASB, 2013).
SBR Framework classifies NBFCs into four layers. NBFCs in the lowest layer shall be known as NBFC – Base Layer (NBFC-BL). NBFCs in middle layer and upper layer shall be known as NBFC – Middle Layer (NBFC-ML) and NBFC – Upper Layer (NBFC-UL) respectively and are considered to be systemically significant.
Level 1 assets are those that are liquid and easy to value based on publicly quoted market prices. Level 2 assets are harder to value and can only partially be taken from quoted market prices but they can be reasonably extrapolated based on quoted market prices. Level 3 assets are difficult to value.
Stage 3 includes financial assets that have objective evidence of impairment at the reporting date. For these assets, lifetime ECL is recognized, and interest revenue is calculated on the net carrying amount (i.e., net of the credit allowance).
Class I: Cash and cash equivalents. Class II: Actively traded personal property (or Section 1092(d)), certificates of deposit, and foreign currency. Class III: Accounts receivables, mortgages, and credit card receivables. Class IV: Inventory.
Tier 3 capital was unsecured, subordinated debt that banks used before the financial crisis to cover market, commodity, and foreign exchange risks from trading activities. It acted as a buffer for potential trading losses but was riskier and lower quality than Tier 1 and Tier 2 capital.
What is the highest salary offered who know NBFC? Highest reported salary offered who know NBFC is ₹50.0lakhs. The top 10% of employees earn more than ₹30.8lakhs per year. The top 1% earn more than a whopping ₹50.0lakhs per year.
Stage 3 – If the loan's credit risk increases to the point where it is considered credit-impaired, interest revenue is calculated based on the loan's amortised cost (that is, the gross carrying amount less the loss allowance). Lifetime ECLs are recognised, as in Stage 2.
Third-tier lenders are providers of personal non-mortgage credit who are not banks, credit unions, building societies or credit card providers. Some third-tier providers are quite large organisations with multiple outlets. Most are single outlet, small operations.
The 12-month or lifetime Expected Credit Loss (ECL) is computed and accounted for based on whether the financial instrument is classified as Stage 1 or 2/3. The components that are crucial to calculate ECL include - Exposure at Default (EAD), Probability of Default (PD), Loss Given Default (LGD), and discount rate.
1. Every Non-Banking Financial company as defined in the Companies (Indian Accounting Standards) (Amendment) Rules, 2016 to which Indian Accounting Standards apply, shall prepare its financial statements in accordance with this Schedule or with such modification as may be required under certain circumstances. 2.
D1 where the advances are doubtful up to 1 year. D2 where advances are doubtful for 1 to 3 years. D3 where the advances are doubtful more than 3 years. Loss assets are those where the loss has been identified by the bank itself or by internal & external auditors.
The SLR is set by the RBI and it is one of the control mechanisms to regulate money flow in the economy. As of May 2025, the SLR in India stands at 18% - meaning every bank must maintain 18% NDTL (Net Demand and Time Liabilities) in liquid form.
Each has its benefits. NBFCs are great for fast processing and flexibility, which helps if your credit score isn't perfect. Banks might take longer but usually offer lower interest rates and are seen as very safe. This blog will explore the main differences between NBFCs and banks.
Each layer has specific criteria, and the regulatory requirements increase as you move up the layers.
Financial activity as principal business is when a companyRss financial assets constitute more than 50 per cent of the total assets and income from financial assets constitute more than 50 per cent of the gross income. A company which fulfils both these criteria will be registered as NBFC by RBI.
Asset Level 3
These are your private equity stakes, your illiquid fund positions, your complex CLO tranches that nobody trades. Market data doesn't exist, so you're building valuations from scratch using internal models and your best assumptions about what a buyer might pay.
Structure of Small NBFCs
The main structure of the Non-Banking Financial Companies are: Board of Directors. Chief Executive Officer or Managing Director. Branch Head.
Stage 1 assets are performing. Stage 2 assets are underperforming (that is, there has been a significant increase in their credit risk since the time they were originally recognized) Stage 3 assets are non-performing and therefore impaired.
The 7 common current assets are Cash & Equivalents, Marketable Securities, Accounts Receivable, Inventory, Operating Supplies, Prepaid Expenses, and Other Liquid Assets, representing items easily converted to cash (within a year) for short-term operations, crucial for liquidity.