BANKS BUYING PRIORITY SECTOR LOANS FROM NBFCs

Earlier, foreign and private banks were the main buyers of bulk credit from NBFCs to meet their priority sector lending targets. But over the last few months, public sector banks too have started buying such loans. Banks which have done some deals recently include Dena Bank, IDBI Bank and Bank of Maharashtra. These are mainly loans granted to buy tractors, farm equipment and small-size auto loans.


A senior official from a public sector bank, which has bought such loans from NBFCs, said this arrangement proves to be mutually beneficial. The bank is able to achieve the priority lending target and the NBFC overcomes its resource crunch. Another advantage for the bank is that generally these are secured loans as they are backed by receivables and the NBFC takes care of recovery issues.



For NBFCs, most of which are non-deposit taking, selling of loans will free up capital for further lending. Their capital adequacy improves as the assets go off their balance sheets.


Source: http://www.blonnet.com/2010/01/31/stories/2010013152360100.htm