The United Bank of India has partnered Srei Equipment Finance for co-lending to micro, small and medium enterprises and the agriculture sector.

The bank plans to leverage the co-lending model to offer credit at a blended interest rate of 11-12 per cent and is eyeing a business of around Rs 200 crore over a period of three months.

Under the arrangement, UBI will leverage its low cost of funds to co-originate and co-lend the loan with Srei Equipment Finance at a mutually agreed ratio.

“The basic advantage is that the bank has a low cost of funds compared with high cost for NBFCs. But a bank has limited reach. While a bank would offer 80 per cent of the credit, the NBFC has to contribute 20 per cent,” Ashok Kumar Pradhan, managing director and CEO of UBI, said. He added that the initiative would help credit flow to the sector at competitive rates.

While the cost of funds for UBI in the second quarter of 2018-19 was 5.06 per cent, it was 9.3 per cent for Srei Equipment Finance during the quarter ended September 30, 2018.

Sanjay Kumar, executive director of UBI, said the co-lending initiatives will be launched at major centres such as Calcutta, Delhi, Mumbai, Ahmedabad, Hyderabad and Guwahati where both the bank and the NBFC has the potential to garner business.

Sunil Kanoria, vice-chairman of Srei, had told The Telegraph last month that plans were being made to explore joint lending with banks, adding that innovative solutions are the need of the hour for the NBFC space.

The RBI came up with the guidelines for co-origination of loans between banks and NBFCs in September.

A minimum 20 per cent of the credit risk by way of direct exposure shall be on the NBFC’s books till maturity and the balance 80 per cent will be on the bank’s books. Based on the respective interest rate and proportion of risk sharing, a single blended interest rate should be offered to the borrower in the case of a fixed rate.

In the case of a floating rate, the weighted average of the benchmark interest rates in proportion of the respective loan contribution should be taken into account.