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Poornima Mohandas

Public sector banks are generally better placed to originate SSI loans, while foreign and private banks lack such opportunities due to their limited reach.

Mumbai , July 17

AS part of its efforts to enhance credit flow to the SSI sector, the Reserve Bank of India is mulling a proposal to include securitisation deals in the priority sector lending norms with a differential weightage to the two transacting banks.

This will enable both the loan-originating bank as well as the bank actually funding it through securitisation to meet their priority sector obligations. Simultaneously, this will also create an active secondary market for SSI debts.

Public sector banks are generally better placed to originate SSI loans, while foreign and private banks lack such opportunities due to their limited reach. Therefore, there is a demand for buying such loans. And this could be done through securitisation of assets.

Originating banks will be encouraged to undertake such deals provided they do get the priority sector `advantages' while selling the loans to other banks. This market gains in momentum towards the end of each fiscal as banks scurry to comply.

The proposal is to give weightage to both banks depending on the deals. The proposal put forth by the Credit Guarantee Fund Trust for Small Industries, a subsidiary of SIDBI, has won the favour of commercial banks and is at present under the consideration of the Reserve Bank of India.

At present the situation is such that, if X bank were to sell its priority sector loans to Y bank, it would help only the buying bank Y in meeting the priority sector requirements. X bank would get no consideration from RBI while calculating exposure to the sector even though it had originated the loan. This new measure seeks to give equal weightage before RBI to both X and Y banks following a securitisation deal.

Once the aforesaid proposal is implemented, public sector banks, often with 45-47 per cent of their assets lent to the priority sector (40 per cent is the stipulated minimum requirement set by RBI), can sell these assets to foreign and private sector banks, who are known to struggle to meet these targets, according to an RBI official. This should serve as a fillip to lend more to these sectors.

The central bank is now testing the feasibility and viability of the idea. Priority sector lending loans include those given to agricultural sector and supplementary activities, animal husbandry, rural housing, tractors and small-scale units amongst many others.

RBI is of the view that this is a good proposal to indirectly improve credit to the small-scale sector by developing the secondary market of these loans. The Credit Guarantee Fund suggests that the proposed differential weightage could be considered at the time of calculating the bank's exposure to priority sector, for the purpose of meeting the RBI-set lending norms.

RBI has been asking commercial banks to comply by priority sector lending requirements.However, there is no move to make its non-compliance a punishable offence since foreign and new private banks, bereft of a rural network, are not on a level ground to meet priority sector lending requirements.

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