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ENS ECONOMIC BUREAU
MUMBAI, AUG 3: Bank credit to non-banking finance companies (NBFCs) for financing of truck operators will be treated as priority sector. The Reserve Bank of India on Monday said bank credit to eligible NBFCs for financing of trucks for the purpose of on-lending to small road and water transport operators will be treated as priority sector lending.
Under the existing guidelines, advances to small road and water transport operators owning a fleet of vehicles not exceeding ten, are eligible to be classified under priority sector lending of commercial banks. This guideline was announced in the April, 1998, credit policy.
A number of new private banks are expected to start lending to the better rated NBFCs for the purpose of on-lending to transport operators. New private banks have during the past four years of their existence mostly met their priority sector targets by subscribing to Sidbi, Hudco, NHB and Nabard bonds.
"It would be wiser for us to lend to NBFCs rather than to the transport operators, sincethe likelihood of a default would be less in the case of the former," said a planning & resources executive in one of the new private banks. The RBI directive has come as a boon for NBFCs which would now have access to much more funds. "The RBI announcement will definitely release much more funds by banks to the NBFC industry. However, banks would be wary of lending to the lower rung NBFCs due to the fear of default," said a senior executive with a Mumbai-based NBFC.
However, over the last year, there has not been much demand for truck finance from transport operators on account of flat freight rates and rising fuel costs and lately, defaults have been on the rise.
The RBI decision is a step in the right direction. Financing truck operators is a specialised business, and many NBFCs have, over the years, acquired expertise in this field. This is reflected in the 90 per cent plus recovery rates which some NBFCs have in truck finance, in stark contrast to the indifferent track record of the commercial banks.It makes sense for banks, therefore, to lend to NBFCs who will on-lend to truck operators, instead of directly funding truck operators.
The administrative costs of supervising thousands of small loans is also high, and lending to NBFCs will reduce these costs. Making loans to NBFCs for this purpose part of priority sector lending will force banks to lend to NBFCs. NBFCs, who are currently facing a funds crunch, will also benefit, as will truck operators. MUMBAI, AUG 3: Bank credit to non-banking finance companies (NBFCs) for financing of truck operators will be treated as priority sector. The Reserve Bank of India on Monday said bank credit to eligible NBFCs for financing of trucks for the purpose of on-lending to small road and water transport operators will be treated as priority sector lending.
Under the existing guidelines, advances to small road and water transport operators owning a fleet of vehicles not exceeding ten, are eligible to be classified under priority sector lending of commercial banks. This guideline was announced in the April, 1998, credit policy.
A number of new private banks are expected to start lending to the better rated NBFCs for the purpose of on-lending to transport operators. New private banks have during the past four years of their existence mostly met their priority sector targets by subscribing to Sidbi, Hudco, NHB and Nabard bonds.
"It would be wiser for us to lend to NBFCs rather than to the transport operators, sincethe likelihood of a default would be less in the case of the former," said a planning & resources executive in one of the new private banks. The RBI directive has come as a boon for NBFCs which would now have access to much more funds. "The RBI announcement will definitely release much more funds by banks to the NBFC industry. However, banks would be wary of lending to the lower rung NBFCs due to the fear of default," said a senior executive with a Mumbai-based NBFC.
However, over the last year, there has not been much demand for truck finance from transport operators on account of flat freight rates and rising fuel costs and lately, defaults have been on the rise.
The RBI decision is a step in the right direction. Financing truck operators is a specialised business, and many NBFCs have, over the years, acquired expertise in this field. This is reflected in the 90 per cent plus recovery rates which some NBFCs have in truck finance, in stark contrast to the indifferent track record of the commercial banks.It makes sense for banks, therefore, to lend to NBFCs who will on-lend to truck operators, instead of directly funding truck operators.
The administrative costs of supervising thousands of small loans is also high, and lending to NBFCs will reduce these costs. Making loans to NBFCs for this purpose part of priority sector lending will force banks to lend to NBFCs. NBFCs, who are currently facing a funds crunch, will also benefit, as will truck operators.
Copyright © 1998 Indian Express Newspapers (Bombay) Ltd.
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This story was printed from Net Express located at http://www.expressindia.com. Net Express provides a portal to India, with news from The Indian Express and The Financial Express along with sites on travel and tourism, the entertainment industry, the power sector, the environment and much more.
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