The statement anatomy is the bank's, with six NBFC-specific twists. Indian NBFCs report under Ind AS with Schedule III Division III formats, while banks report under RBI's older formats. So, oddly enough, the "shadow" sector has the more modern accounting.
Interest income is recognized on the effective interest rate (EIR) method. Origination fees and direct costs are amortized into yield over the loan's life instead of being booked upfront. Watch the mix-shift story inside the yield. A rising blended yield can mean pricing power. Call that the good case. It can also mean a quiet pivot into riskier segments. That was the DHFL move, with developer loans at 14% dressed up as "mortgage growth". Your first read is the segment and product split in the investor deck.
Interest expense prices the whole liability stack: bank term loans (floating, repo- or MCLR-linked), NCDs (fixed, 2 to 5 years), CP (60 to 90 days), ECBs, securitization payouts, subordinated debt. Two ratios belong here. One is cost of funds (KPI 4), the other the gap between marginal and average CoF. When rates rise the average lags the marginal, so this year's NIM is partly yesterday's funding. For maturity and mix, go to the borrowings note. Then read the rating agency's rationale. Rationales are free on the CRISIL/ICRA/CARE/India Ratings sites, and they're the densest document you'll find about any NBFC's liability side.
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How are credit losses provisioned under Ind AS 109?
Impairment (credit cost) is Ind AS 109 three-stage ECL. It's a real analytical upgrade on banks' incurred-loss regime, and a new surface for manipulation. Stage 1 is performing, with 12-month expected loss. Stage 2 is a significant increase in credit risk (typically 30+ days past due) and carries lifetime expected loss. Stage 3 is credit-impaired at 90+ dpd, the GNPA analog. The model's inputs (probability of default, loss given default, macro overlays) are management estimates. The games get played in the stage-2 migration criteria, the coverage ratio per stage and the release of "management overlays". RBI keeps a prudential floor. NBFCs must compute provisions under the old IRAC norms in parallel, and if IRAC exceeds Ind AS ECL, the difference goes to an impairment reserve. That's a tell worth checking, since a large impairment reserve means the ECL model runs systematically lighter than the regulatory minimum. US consumer lenders, for comparison, run CECL, which books lifetime expected loss from day one and is the most front-loaded of the three regimes. Same economics, three recognition speeds. IRAC for Indian banks is the slowest, Ind AS ECL comes in the middle, and US CECL is the fastest.
Where can an NBFC's numbers mislead you?
Other income hides the quality-of-earnings issue peculiar to this sector: upfront gains on direct assignment. When an NBFC sells a loan pool via DA and achieves derecognition under Ind AS 109, it books as income now the present value of the excess interest spread it will earn over the pool's life. A lender selling ₹5,000 crore of pools a year can manufacture a visible slice of its PAT this way. Nothing about the economics is fake. Only the timing has been pulled forward. Use your quality-of-earnings reflex here. Restate the year's ROA with assignment gains spread over pool life, and treat a rising share of upfront gains in a slowing year as the classic tell. Practice 7 works one through.
The balance sheet reads asset-side first in only one respect, the off-book AUM. Assets under management = on-book loans + assigned/securitized pools + co-lending shares serviced. A deck headline ("AUM +24%!") uses the big number. Gearing and CRAR use the on-book number. The fee stream and the credit exposure straddle the two, through the 5 to 10% minimum retention, credit enhancements and servicing obligations. Rebuild the bridge every time (KPI 1).
You already know how to read everything else: the loan book's mix and seasoning, the stage-wise disclosure, the borrowings schedule, contingent liabilities. What you haven't built yet is the statement that decides survival. You'll build it in asset liability management.