Bank of Baroda plans ₹10,675 crore fresh exposure to shadow banks

Mumbai: Public sector lender Bank of Baroda (BoB) plans additional exposure of ₹10,675 crore to non-banking financial companies (NBFCs) in the second quarter of FY20. BoB is looking to purchase NBFC assets worth ₹5,600 crore, co-originate loans of ₹1,000 crore, provide loans of ₹3,575 crore for on-lending to the agri sector and has set aside ₹500 crore for “high-ticket balance sheet takeover”, according to a BoB proposal reviewed by Mint.

Of the total sanctions, the bank expects to disburse ₹5,337.5 crore in the September quarter.

BoB is planning to buy loans worth ₹5,600 crore from seven NBFCs during the quarter, the document showed. In certain cases, it said, the bank will obtain partial guarantee cover from the government.

In July, finance minister Nirmala Sitharaman announced 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 NBFCs. The guidelines, released earlier this month, said the pool of assets should have a minimum rating of AA, or equivalent, at a fair value prior to the partial credit guarantee.

The BoB document said the bank is in discussion with non-banks for asset purchased under the direct assignment route, a method for securitization. It plans to purchase loans worth ₹3,000 crore from PNB Housing Finance Ltd, ₹800 crore from India Infoline Finance Ltd, ₹900 crore from Fullerton India Credit Co. Ltd, ₹400 crore from Fullerton India Home Finance Co. Ltd, ₹200 crore from Indiabulls Consumer Finance Ltd, ₹100 crore from MAS Financial Services and ₹200 crore from Annapurna Microfinance Pvt. Ltd.

While email queries to six of these NBFCs remained unanswered till the time of going to press, an Indiabulls spokesperson said it “does not have any comment”. The bank has already tied up with two NBFCs for co-origination of loans, while 14 more are in the pipeline. It has also started working with Edelweiss Financial Services, discussions with Cholamandalam Investment and Finance Co. Ltd, and talks with Indiabulls Housing Finance Ltd 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 Reserve Bank of India (RBI) had allowed banks to co-originate priority sector loans with non-banks, provided NBFCs had at least 20% exposure in the joint loan. Papia Sengupta, executive director, BoB, said on Monday that the 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, borrowers get 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 a 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.

Mint reported on 30 June that BoB had entered into a transaction with Dewan Housing Finance Corp. Ltd to acquire loans worth ₹3,000 crore against its exposure to the non-bank lender. BoB acquired the loan pool from Dewan Housing and adjusted it against its loans to the non-bank lender.