In midst of NBFC crisis, SBI launches co-origination pact for MSME lending
Co-origination is a new system introduced by the Reserve Bank of India (RBI) in the wake of the liquidity crisis at non-banking finance companies (NBFCs) to enhance credit flow to productive sectors.
The troubled shadow banks are not yet out of the woods and the largest lender, State Bank of India (SBI), has stitched a co-origination agreement to finance small businesses, which used to be a major customer-base for the crippled financiers, according to Arijit Basu, Managing Director, SBI.
Co-origination is a new system introduced by the Reserve Bank of India (RBI) in the wake of the liquidity crisis at non-banking finance companies (NBFCs) to enhance credit flow to productive sectors. Fresh credit flow can help both the troubled NBFCs and also help prop up the sagging growth.
The SBI official added that SBI has forged an agreement with an NBFC for SME financing and is also in talks with at least four more NBFCs for lending to SMEs and also for extending housing loans.
"We have not come to a situation where things are looking up. Banks need to support NBFCs," Basu said, adding, "SBI has been lending to select NBFCs through last year, when the entities began to face liquidity issues after IL&FS went bankrupt last September."
He conceded that it needs to do more to support smaller NBFCs which face more liquidity issues as they don't have good credit ratings.
The key issue for the troubled sector is solvency now, he said, adding the way forward will be decided by how these companies conduct their asset liability management.
It can be noted asset liability mismatches, where NBFCs borrow short and lend long-term, has been found to be a fundamental flaw which has led to issues in the sector.
Basu said it is the smaller NBFCs which need to access long-term resources, and rued that the problem gets confounded in the absence of a vibrant corporate bond market.
He stressed on SBI's commitment to helping NBFCs or extending festive offer schemes, which it used to do earlier to drive auto sales.
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