The Hindu Business Line : NBFCs seek closer tie-ups with banks

EVEN as Non-banking finance companies demanded more bank funds to their industry at a meeting here, the meeting's chief guest Mr S.C. Gupta, CMD of Indian Overseas Bank, pointed out that it was the NBFCs who did not come forward to utilise the funds offered by the bank.

Indian Overseas Bank, Mr Gupta said, had earmarked three per cent of its advances to NBFCs, but "ever since we set the limit, it has remained unexhausted."

IOB had an advance book of Rs 17,447 crore on March 31, 2003, and expects its credit portfolio to have grown by at least Rs 2,500 crore by March-end this year.

Mr Gupta said that the bank did not even insist on a credit rating for the NBFCs to be able to borrow from IOB.

Both Mr Gupta, and members of the South India Hire Purchase Association, which organised the meeting, said that it was meaningless for banks and NBFCs to compete, when their roles were really complementary.

"Our strength is in assessing the (retail) borrowers; your (banks') strength is in funding," said speakers from the Association.

Today, while many new private sector banks and foreign banks actively buy loan assets from NBFCs to increase their (banks') asset base, public sector banks shy away from doing so. ICICI Bank, UIT Bank and Citibank are good examples of banks that have partnered with NBFCs to generate retail loans. UTI Bank, for instance, has increased its retail assets from Rs 247 crore at the end of 2002-03 to more than Rs 2,000 crore now.

However, public sector banks seem to believe that they could use their large branch network to generate retail loans, though there have been few success stories outside home loans.

Also, as it was pointed out at the meeting, a few NBFCs (such as Sundaram Finance or Cholamandalam) get bank funds at very attractive rates of interest, say around 6-7 per cent, the smaller NBFCs are unable to access the funds at less than 12-13 per cent.

At the meeting, Mr Gupta said in a lighter vein: "If you want a credit enhance, come to us. But if you want a lower rate of interest, don't."

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