The auto financing business of the non-banking financial companies (NBFCs) is likely to improve as banks may take all the possible moves to meet their priority-sector lending targets by end of the fiscal.
NBFCs usually coverts its auto loans into financial securities and sell them to banks. This enabled the companies to save their books from the risk of default and also the amount received through the sale was used to lend further in the market.
On the other hand banks were buying these securities because they wanted to meet their priority sector lending targets. However the liquidity crisis that become severe since October prompted banks to stop purchasing these securitized papers. As a result, NBFCs did not had funds to enter the market and their auto financing business got affected in a severe manner.
The economic meltdown also resulted in the drop of vehicle sales and pushed the NBFCs out of business. But now as the banks are trying their best to meet their priority sector targets for the current fiscal, NBFCs are hoping banks to purchase these asset backed securities that would eventually help them to scale up their auto financing business.
Executive director at Care ratings, Rajesh Mokashi said that some banks may revise their interest rates of the securitised debt from NBFCs "to fulfill their priority sector needs."
He further added, "Last year, this market was about Rs 35,000-40,000 crore but this year, it may be down to Rs 20,000-25,000 crore due to caution in the October-December quarter, but that diminishing interest is reviving. There have been 7-8 deals already done by NBFCs."
Sale of the securitized loan is a bilateral deal between the NBFCs and banks. Banks normally buy these papers to get access to priority sector lending without actually servicing the loan. While for NBFCs it is an easy route to get recyclable money.
Earlier Mutual fund companies also use to invest in these papers for their fixed maturity plans but now they have exited the segment due to the liquidity crunch. Therefore NBFCs are looking forward to banks to sell these securities.
The Chief financial officer of non-banking financial arm of auto company Mahindra & Mahindra, Mahindra Finance, V Ravi said that NBFCs have been affected because mutual funds that are main buyers of these securities have exited the market.
Now as the banks are buying these papers, NBFCs will see an improvement in their auto financing portfolio. Mr Ravi informed that in the past 45 days his company has signed 2 to 3 such deals with the banks. "Banks want to increase their portfolio and so they buy these loans, some of which may come into priority sector," he said.