Bank of Baroda (BoB) has entered into a transaction with Dewan Housing Finance Corp. Ltd (DHFL) to acquire loans worth Rs 3,000 crore against its exposure to the non-bank lender, two people aware of the development said, an English daily reported.
BoB has acquired the pool of loans made by DHFL and adjusted it against its loans to the non-bank lender, the sources said, requesting anonymity. Since the acquired loans are higher-rated assets, the quality of BoB’s loan book will improve.
“Now DHFL will only act as a collection agent for the bank for these loans. The bank will keep around 85-90 percent of the repayments to itself and the rest will go to DHFL,” one of the sources said.
Since BoB had an exposure of close to Rs 6,500 crore to DHFL, this will be pared by a little less than Rs 3,000 crore, the second person said.
“Securitization of assets often happens, but what is different in this case is that the borrower, instead of using the money for liquidity needs is using it to cancel future term loan repayments,” a banking analyst said on condition of anonymity.
Purchases of loan pools by banks help inject liquidity into non-bank lenders. Banks often buy loans from shadow lenders comprising securitized retail loans to meet priority sector lending shortfall.