Canara Bank has informed the Exchange that in continuation reply to the news clarification dated August 14, 2013 Bank has further clarified that "The Bank had sactioned term loans for buying out the Retail Loan Portfolio to various Non-Banking Financial Companies (NBFCs). Some of the said NBFCs had availed the term load in different tranches and some are yet to avail the same. Portfolio Buy out/Securitization of Assets is a normal Banking transaction being followed by many Banks to increase their assets as permitted by RBI. Hence, we once again reiterate that the above is the normal course of business being done by the Bank".
News Item: Mumbai August 14, 2013
Canara Bank in talks with Capital First, other NBFCs to buy more retail loans
A number of non-banking financial companies (NBFC), including Warburg Pincus-backed Capital First, are selling a part of their retail loan portfolios to Canara Bank to free up their balance sheet, as well as to share profits. Other public sector banks are also talking to various NBFCs for similar deals.
Canara Bank is in talks with a number of NBFCs, including Capital First, Bajaj Finserv and Indiabulls Finance, to buy a part of their retail loan portfolio, said a source in the bank. The talks are currently on to buy another tranche of Rs 500 crore from Capital First. The bank already bought Rs 500 crore worth of the loan book a few months ago, the source added.
The bank is also in touch with Bajaj Finserv and Indiabulls to buy loan books of Rs 500 crore each. “The idea is to grow our retail loan book via this route by another Rs 4,000 crore. By taking over the loan, we are deploying our cash in high quality customers. Both the NBFC and the bank will share the profit margins,” the source said.
NBFCs lend to their customers at the rate of 13.5 per cent each, while the rates of public sector banks are lower. By buying the loans, the NBFC gets the money to look for more opportunities while the bank gets assured customers at a time when lending to corporate sector has almost dried up.
The source said the retail and smaller borrowers are safer compared to larger borrowers. “We have noticed it is the large borrowers like Winsome, Deccan and Kingfisher which have defaulted on loans and very rarely have small loan borrowers defaulted. The idea is to buy more such loans from NBFCs as their due diligence while selecting customers is very high,” the banker pointed out. The non-performing assets of NBFCs are comparatively lower than the banks as they follow stringent lending norms.
A host of NBFCs are now talking to public sector banks to sell their retail loan portfolios.
For banks, it is a good deal as they get low-cost deposit at the rate of 3.5 per cent and can deploy it at an average rate of 10.5 per cent with the borrowers of NBFCs. An NBFC customer, however, does not get the benefit when a public-sector bank takes over the loan book as the customer has locked himself in a higher rate with the NBFC.
The Reserve Bank of India (RBI) had earlier restricted NBFCs from accessing the private placement route for funds. Hence NBFCs are increasing funding from banks, which though lend to NBFCs at slightly higher rates near their benchmark lending rates. This will reduce the net interest margins of NBFCs borrowing from banks.
Dev Chatterjee & Clifford Alvares | Business Standard News Paper
News Item: Mumbai August 14, 2013
Canara Bank in talks with Capital First, other NBFCs to buy more retail loans
A number of non-banking financial companies (NBFC), including Warburg Pincus-backed Capital First, are selling a part of their retail loan portfolios to Canara Bank to free up their balance sheet, as well as to share profits. Other public sector banks are also talking to various NBFCs for similar deals.
Canara Bank is in talks with a number of NBFCs, including Capital First, Bajaj Finserv and Indiabulls Finance, to buy a part of their retail loan portfolio, said a source in the bank. The talks are currently on to buy another tranche of Rs 500 crore from Capital First. The bank already bought Rs 500 crore worth of the loan book a few months ago, the source added.
The bank is also in touch with Bajaj Finserv and Indiabulls to buy loan books of Rs 500 crore each. “The idea is to grow our retail loan book via this route by another Rs 4,000 crore. By taking over the loan, we are deploying our cash in high quality customers. Both the NBFC and the bank will share the profit margins,” the source said.
NBFCs lend to their customers at the rate of 13.5 per cent each, while the rates of public sector banks are lower. By buying the loans, the NBFC gets the money to look for more opportunities while the bank gets assured customers at a time when lending to corporate sector has almost dried up.
The source said the retail and smaller borrowers are safer compared to larger borrowers. “We have noticed it is the large borrowers like Winsome, Deccan and Kingfisher which have defaulted on loans and very rarely have small loan borrowers defaulted. The idea is to buy more such loans from NBFCs as their due diligence while selecting customers is very high,” the banker pointed out. The non-performing assets of NBFCs are comparatively lower than the banks as they follow stringent lending norms.
A host of NBFCs are now talking to public sector banks to sell their retail loan portfolios.
For banks, it is a good deal as they get low-cost deposit at the rate of 3.5 per cent and can deploy it at an average rate of 10.5 per cent with the borrowers of NBFCs. An NBFC customer, however, does not get the benefit when a public-sector bank takes over the loan book as the customer has locked himself in a higher rate with the NBFC.
The Reserve Bank of India (RBI) had earlier restricted NBFCs from accessing the private placement route for funds. Hence NBFCs are increasing funding from banks, which though lend to NBFCs at slightly higher rates near their benchmark lending rates. This will reduce the net interest margins of NBFCs borrowing from banks.
Dev Chatterjee & Clifford Alvares | Business Standard News Paper
