Public sector lender Bank of Baroda (BoB) plans to buy ₹5,600 crore loans from seven non-banking financial companies (NBFCs) in the September quarter, according to a document seen by Mint.
In applicable cases, the bank will obtain partial guarantee cover from the government, the document said.
Finance minister Nirmala Sitharaman had announced in July that the government will provide a one-time six-month partial credit guarantee to public sector banks for the first loss of up to 10% for purchasing high-rated assets from non-bank lenders. The guidelines, released earlier this month, said the pool of assets should have minimum rating of AA or equivalent at fair value prior to the partial credit guarantee.
The document said the bank is in discussion with these non-banks for asset purchased under the direct assignment route, a method for securitisation. The bank plans to purchase loans worth ₹3,000 crore from PNB Housing Finance Ltd (PNBHFL), ₹800 crore from India Infoline Finance Limited (IIFL), ₹900 crore from Fullerton India Credit Company Ltd (FICCL), ₹400 crore from Fullerton India Home Finance Company Ltd (FIHFCL), ₹200 crore from Indiabulls Consumer Finance Ltd (IBCFL), ₹100 crore from MAS Financial Services and ₹200 crore from Annapurna Microfinance Pvt LTed
While emails sent to six of these NBFCs remained unanswered till the time of publishing the story, an Indiabulls spokesperson said the company does not have any comment.
The lender is targeting sanctions of ₹10,675 crore to the NBFC sector through a clutch of schemes, including ₹5,600 crore under the asset purchase programme. Others are ₹1,000 crore through co-origination of loans with non-banks, ₹3,575 crore through agri finance for onward lending and another ₹500 crore through “high-ticket balance takeover”. Of the total sanctioned loans, Bank of Baroda expects to disburse ₹5,337.5 crore in the September quarter of FY20.
The bank has already tied-up with two NBFCs for co-origination of loans and there are 14 more in the pipeline. While it has started working with Edelweiss Financial Services, discussions with Cholamandalam Investment and Finance Company, and Indiabulls Housing Finance are in advanced stages, the document showed. Moreover, another 12 companies including Adani Capital, U GRO Capital, and Avanse Financial Services Ltd, are in the pipeline.
In September 2018, the central bank allowed banks to co-originate priority sector loans with non-banks, provided NBFCs have at least 20% exposure in the joint loan. Papia Sengupta, executive director, Bank of Baroda (BoB) said on Monday that RBI has allowed the bank to use co-origination in non-priority sectors as well.
“RBI has never said it is not available for non-priority sectors. In fact, our policy is covering both priority and non-priority sectors and when we asked for a clarification, RBI said very clearly that it nowhere bars us (the bank) from taking it for non-priority sectors,” said Sengupta.
Under the co-origination model, the borrower gets a blended rate of interest for fixed rate loans and a weighted average of the benchmark interest rates in proportion to the respective loan contribution, for floating rate loans.
“It will be win-win situation for the customer. Were they to take the loan directly from an NBFC, they would have had to pay a higher interest on the entire loan,” she said.
InFeed reported on 30 June that Bank of Baroda (BoB) has entered into a transaction with Dewan Housing Finance Corp Ltd (DHFL) to acquire loans worth ₹3,000 crore against its exposure to the non-bank lender. BoB acquired the pool of loans made by DHFL and adjusted it against its loans to the non-bank lender.