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Rajalakshmi Menon

MUMBAI, Dec. 31

IN a bid to boost its lending to the commercial vehicle industry, State Bank of India (SBI) is planning to enter into tri-partite agreements with non-banking financial institutions (NBFCs) to finance truck operators.

This is the first time that the bank would enter into such third party agreements with NBFCs. Prior to this, the bank was financing the commercial vehicle industry directly.

Currently, SBI finances the truck industry to the tune of around Rs 900 crore outstanding through direct financing. With these agreements, the financing of the bank in this area is expected to increase by Rs 100 crore. The total outstandings of bank funds to truck operators is to the tune of around Rs 8,000 crore.

As per the plan, the bank will tie up with reputed NBFCs, which are registered and have a good track record. The bank and the NBFC will then identify certain select truck operators and then enter into a tri-partite agreements.

SBI will finance the truck operators at an interest rate of 12 per cent, while three per cent will go the NBFC.

Importantly, the NBFC will sign an undertaking, guaranteeing that the truck operators will repay the loan and in case of a default, the NBFC will take over the loan.

With these tie-ups the bank will not only boost its lending to this industry but also benefit through better recoveries with the help of NBFCs.

NBFCs, which have been primary financiers for the commercial vehicle segment until recently, have a better infrastructure in place to effect recoveries.

Recently, a working committee of the Indian Banks Association (IBA), constituted to identify the problems faced in the commercial vehicular industry and suggest remedial measures to boost financing in this segment had submitted its recommendations.

The committee had said that banks should provide more funds to NBFCs to increase financing for commercial vehicles.

The committee had also recommended better surveillance of loans provided to NBFCs and to look upon them as partners in the intermediation process and work with NBFCs for tie-ups in asset recovery and technical expertise.

In a meeting with the Finance Minister in September, representatives of the commercial vehicle industry had said that over the past few years there has been a decline in the demand for commercial vehicles that has had an impact on the entire economy.

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