MUMBAI, January 30: Bank of India (BoI) is in talks with a number of non-banking finance companies (NBFCs) with good asset portfolio's like Tata Finance, Sundaram Finance, Gujarat Leasing Financial Services, Ashok Leyland Finance among others for securitising their assets.The bank is seriously considering securitising assets of NBFCs, a highly placed bank official said. "It is a good business avenue with lot of potential for growth," he said. However, the bank has not finalised anything so far as RBI has given an assurance to the NBFCs that it will relax some of the prudential norms issued in the first week of January which are causing concern in the industry.
As per the new RBI norms, most NBFCs which have raised deposits in excess of their net owned fund will have to regularise their position by June 1999. Thus, in order to regularise themselves, most cash-trapped NBFCs which are not in a position to raise cash will have to approach banks for maintaining a comfortable cash flow. And this, feel bankers,is an attractive business proposition with large profit margins.
"We have short-listed the companies but have not finalised anything as yet, but informal talks are on with them. We are awaiting clarification from the Reserve Bank of India (RBI) on the prudential norms and only after that will we formalise anything," informed a bank official.
Before securitising asset of any company, BoI will first look into the quality of the asset, the profile of the company, its financial status and the bank's relationship with it. The bank is currently looking at AAA-rated companies," said BoI officials. Bank of India has an exposure to some 90 NBFCs. The bank's exposure to the NBFC sector exceeds Rs 400 crore. "We are at present following a restrictive policy as far as credit to the NBFC sector is concerned," said a bank official.
Securitisation of asset is a lucrative business. "The Reserve Bank has linked rating and deposits which an NBFC can raise. With this most NBFC's which have raised deposits to more than twoto three times their networth will have to regularise their position. Thus, most NBFC's will have two options before them - either to borrow funds from the market or sell their assets to banks. At such a time, securitisation of assets by reputed banks will build up investor confidence and give a new lease of life to NBFCs," said a bank official.
Most banks are considering this option seriously as asset security is a profitable business with huge profit margins. It is very likely that banks will jump into this area, so far untouched by the banking sector. It will be another avenue for raising money, feel bank experts.
Copyright © 1998 Indian Express Newspapers (Bombay) Ltd.
