Srei bets on co-lending for equipment finance with RBI norms in place

Under the guidelines, NBFCs need to take a minimum 20% of the credit risk by way of direct exposure, with the balance being taken by banks

Kolkata-based non-banking finance company, Srei Infrastructure Finance is tweaking its lending model, as it plans to start co-lending in the equipment finance space.

This follows the Reserve Bank of India’s guidelines on co-lending by banks and non-deposit taking NBFCs in September 2018. Under the guidelines, NBFCs need to take a minimum 20 per cent of the credit risk by way of direct exposure, with the balance being taken by banks.

In the last few months Srei has tied-up with four banks—ICICI Bank, United Bank of India, Syndicate and Bank of Baroda—for co-lending in equipment finance. Talks are on for similar tie-up with about four to five other banks, Hemant Kanoria, chairman, Srei Infrastructure Finance told Business Standard.

Srei plans to have a co-lending arrangement with about eight banks initially.

“We have aligned our business model in consonance with the on-going infrastructure projects in the country and structuring more transactions through co-lending arrangements with banks. In view of the co-financing, our risk weighted returns will improve and will augment our profits,” said Kanoria.

Apart from co-financing, Srei equipment also lends by way of securitization, apart from direct lending, where it has the entire loan exposure in its books.

As on December 2018, Srei’s total asset under management was about Rs 50000 crore. Of this, the share of equipment finance was about 32000 crore, while infrastructure finance was nearly Rs18000 crore.

At present, Srei has about 35 per cent share in the equipment finance market in India. It has been growing its equipment finance book, while remaining cautious on infrastructure lending. For example, as on December 2017, Srei’s exposure to equipment finance was about Rs 27000 crore, which increased to Rs 32000 crore by the end of December 2018. However, the share of infrastructure finance remained at the same level of Rs 18000 crore in both the years.  

“We will continue to focus on our equipment financing business because the opportunity in the business is substantially large. Many infrastructure players like IDFC and many banks have exited the infrastructure financing space in the recent past. Though we had also slowed down our disbursements in the infrastructure projects for the last six years, but we feel that going forward, after the new government comes in, it will take off again. However, our equipment financing business is growing and will continue to grow,” said Kanoria.

In January this year, Srei Infrastructure Finance had announced listing its subsidiary Srei Equipment Finance through an amalgamation scheme. Earlier, it had planned to list Srei Equipment finance through an initial public offering.  

 Under the amalgamation scheme, the lease business of Srei Equipment will demerged to new company, a wholly owned subsidiary of Srei Infrastructure Finance. The remaining portfolio of the equipment finance company will be amalgamated with Srei Infrastructure Finance. Thus, Srei Equipment Finance would stand dissolved, without being wound up.