Co-lending agreements between two non-banking finance companies (NBFCs) are unlikely to become an industry-wide trend as there is a lack of synergy in such models, Anand Rathi Global Finance chief executive officer (CEO) and executive director Jugal Mantri told FE on Monday.
“I do not think the tie-up between a fintech NBFC and a smaller NBFC can be a big phenomenon — this sort of synergy is not sustainable and a big growth driver. In the financial sector, synergy and tie-ups are successful if they help achieve greater advantage in term of lower cost or expanding reach. If you are entering into long-term tie-ups, there has to be certain objective complementing each other,” Mantri said.
Co-lending refers to partnerships between two lenders, typically a bank and a non-bank, to offer loans to economically-weaker sections or borrowers under the priority sector lending programme. Under the model, 20% of the credit risk by way of direct exposure is on the NBFC’s book till maturity while the balance is on the bank’s books.
Mantri said NBFCs have a cost-advantage while partnering with banks for co-lending, while banks can take advantage of the last-mile reach of NBFCs in niche categories. These synergies are lagging in co-lending pacts between two NBFCs, he said.
“If we are talking about two NBFCs coming together with similar expertise, is it going to serve any purpose? I think it will serve a very limited purpose and have little synergy, but will face similar challenges like raising of resources, higher cost of funds and higher return expectations,” the CEO said.
At Anand Rathi Global Finance, Mantri said, co-lending activities will only happen after the NBFC achieves the target of bringing 50% of its balance sheet size under lending business. “Our balance sheet size is about Rs 10,000 crore, out of this 28-30% is in the lending business and the remaining amount is into treasury (G-Secs/bonds/MFs). We are targeting to have at least 50% balance sheet into lending by FY25.”
Anand Rathi Global Finance’s lending book is expected to grow to Rs 4,200-4,500 crore in FY24, from Rs 2,800 crore as of January 2022, Mantri said. Currently, 100% of the NBFC’s loan book is secured against tangible assets.
The NBFC has recently appointed one of the Big 4 audit firms to conduct a detailed study on existing lines of business and emerging lines of lending opportunities. “We are expecting to have their detailed report by June 2023 and will chalk out our growth plan and shape the future course of action thereafter,” Mantri said.
On exposure to the Adani Group, Mantri said it does not have any direct lending exposure. ”We have few LAS (loan against securities) clients who are holding Adani shares as part of their portfolio and pledged with us. We have reported the same to the RBI. The overall exposure was less than Rs 10 crore.”
The company is targeting gross non-performing assets (GNPA) and net NPA of less than 2.5% and 1.5%, respectively, by FY24. As of now, Mantri said, collections are in excess of 96% and GNPAs are around 3.2% and the net NPA is around 2% of the overall loan book.
