Bank of Baroda (BoB), India’s second-largest public sector bank, is betting big on co-originating loans with non-banking finance companies (NBFCs) and fintech companies.

In this regard, BoB has entered into alliances with Srei Equipment Finance and ECL Finance to offer joint loans for infrastructure equipment and MSMEs..

Papia Sengupta, Executive Director, said the bank is in talks with more NBFCs and fintech companies to leverage the model of co-originating loans. “We are very much there in the co-origination space. We have been always doing a lot of pool purchases (of assets). What we have found out actually is that in the case of some NBFCs the (co-origination) model is very good.

“If we look at NBFCs’ non-performing assets, they are very low, even much lower than what banks are having in the same (loan) segment. Even in our pool purchases we found that their (NPA) ratios were much lower than what we were generally having in our overall exposure. So, we are happy to be there in the co-origination space,” said Sengupta.

The BoB ED said some of the NBFCs which had liquidity problems are coming out of it. In its latest annual report, the bank said to reach out to newer business segments and to deliver the benefit of lower interest rates, it is co-originating loans with different NBFCs and has entered into co-origination arrangements with certain NBFCs.

As per RBI guidelines on co-origination of loans by banks and NBFCs for lending to priority sector, all scheduled commercial banks (excluding Regional Rural Banks and Small Finance Banks) can engage with NBFCs to co-originate loans for the creation of priority sector assets. The arrangement should entail joint contribution of credit at the facility level, by both lenders.

The arrangement should also involve sharing of risks and rewards between the bank and the NBFC for ensuring appropriate alignment of respective business objectives, as per the mutually decided agreement between the bank and the NBFC.