With this step, the bank will get new accounts, to whom they will be cross-selling other products as well. At the same time, NBFCs will get an opportunity to grow their business – asset under management – without facing any capital constraints or funding related challenges.

The bank will fund 80-90% of the total loan amount depending upon the seasoning.

Papia Sengupta, ED, said, “Economic slowdown can only be aided with the growth in rural consumption. NBFCs and housing finance companies (HFCs) are more close to the rural and semi-urban population of the country. Co-origination with NBFCs, at the time when they are facing liquidity issues, will help the economy to grow.”

Rural is not only the agri-sector but also labourers, if they have more money, their consumption will go up, she added.

Ever since the Reserve Bank of India (RBI) has allowed co-origination, the bank has been looking for partners, the ED said. The bank has lined up 10 partners to co-originate with for starters. However, the selection of NBFCs will depend upon how old the company is, which sector it lends to, its non-performing assets. Tech-using NBFCs and HFCs will get extra preference.

The bank has already started a strategic alliance agreement for co-origination with Srei Finance and Edeweiss Financial. Talks with Indiabulls Housing Finance and Cholamandalam Finance are at an advance stage. Other names which are under pipeline are Adani Capital, India Infoline Finance, Hero Fincorp, Avanse Financial, etc.

Although the RBI had asked banks to on-lend for the priority sector, Bank of Baroda has taken clarification from the central bank to lend NBFCs for non-priority sectors as well. However, the bank will be focused to lend for micro, small and medium enterprises (MSMEs), education, housing and loan against property. Besides NBFCs, every account will go through the proper due diligence of the bank. There will be certain lending guidelines provided to NBFCs during the agreement.

The bank will also benefit from the relatively higher-yield retail loans, thereby helping them meet their priority sector lending requirements while enhancing the diversity in their loan portfolio. This will further encourage financial inclusion. Blended rates will help borrowers access relatively lower interest rates than NBFCs.

The management believes that the bank will benefit from the NBFCs’ sourcing and collection expertise in retail and MSME portfolios. Not only co-lending, the bank is also looking for direct purchases of loans. During 2018-19, the bank had purchased assets around `10,000 crore from different NBFCs and HFCs.