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Agri loan buyout deal

About Priority Sector Lending The Government of India through the instrument of Reserve Bank of India (RBI) mandates certain type of lending on the Banks operating in India irrespective of their origin. RBI sets targets in terms of percentage (of total money lent by the Banks) to be lent to certain sectors, which in RBI's perception would not have had access to organized lending market or could not afford to pay the interest at the commercial rate. This type of lending is called Priority Sector Lending. Financing of Small Scale Industry, Small business, Agricultural Activities and Education fall under this category. This is also called directed credit in Indian Banking system.

The proposal: One of our esteemed clients in order to fulfill its priority sector lending target wants to provide fresh priority sector loans as well as buying out existing priority sector loans from DCBs, RRBs and other banks. So, the opportunity exist both ways- new disbursement of loan to priority sector as well as take over of existing loans.

Loans that qualify as priority sector loan

Agriculture : Direct Finance to individual farmers or Joint liability groups ,self help groups for agriculture including tea, coffee) and allied activities like dairy , fishery, poultry, bee-keeping, etc) Loans granted for pre harvest and post harvest activities like spraying, weeding, harvesting and so on. Indirect Loans to food and agro processed units where investment in plant and machinery is up to 10 crores. Finance of hire purchase scheme of agricultural machinery and equipments. Loans to NBFC/MFI/NGO for on lending to individual farmers/self help groups Loans for construction and running of storage facilities.

Small enterprise Direct Loans given to manufacturing/processing having investments in plants and machineries below 5 cr. Loans given to small/micro enterprises who are into manufacturing/service. Loans given to khadi and village Industries sector.

InDirect Loans given to cooperatives opf producers in the decentralized sector like cottage ,artisan Advances granted to private retail players, fair price shops not exceeding 20lakhs Loans granted by Banks to NBFCs for on lending to small and micro enterprises. Education Educational loans granted to individuals upto 10 lakhs for studying in India and upto 20 lakhs for studying abroad. Loans granted to NBFCs for on lending to individuals for studying upto 10 l;akhs for studying in India and upto 20 lakhs for studying abroad. Housing Loans upto 20 lakhs irrespective of location for purchase, construction of dwelling units. Loans given for repairs to damaged dwelling units upto 1 lakh in rural and upto 2 lakhs in urban areas. Assistance given to slum rehabitation subject to a ceiling of 5 lakhs per dwelling unit. Weaker sections Loans and advances given to scheduled tribes, scheduled casted Loans given to small and marginal farmers.

(A)
Originator:

Parties to the transaction for loan buyout from FIs

Financial Institution or Lender willing to sell its agricultural loan portfolio, which qualifies as a priority sector loan as per RBI norms / guidelines. Acquirer: Financial Institution or Buyer which is willing to purchase the agricultural loan portfolio from the Originator for fulfilling its priority sector requirements. Portfolio The loan portfolio should qualify as an agricultural loan and satisfy the priority sector requirements as per RBI norms. Transaction Structure The Originator will choose the appropriate assets from its loan portfolio for the above purpose. The Acquirer will scrutinize the same and enter into an agreement with the Originator to purchase the portfolio. The Acquirer will also simultaneously enter into an agreement for selling the portfolio back to the Originator at a mutually agreed date post April 05, 2010 Transaction Economics The calculations are based on the following assumptions Portfolio purchase date: Portfolio sale back date: Average portfolio interest rate: December 01, 2009 April 05, 2010 12.5% p.a.

Portfolio purchased at a discounting rate of 5.25% p.a. Portfolio amount: INR 3000 crores

Other details:
The portfolio should have loan customers with at least 2-3 months track record with the Originator. The loans should not be repaid before April 05, 2010. Ideally the holding period would be between 4-6 months. The acquirer would verify all credit history , payback capability ,interest charged and the covenants of the loans mentioned in the sanction letter/term sheet before signing on the dotted line. The transaction would be governed by UNIFORM CODE GOVERNING INTER BANK PARTICIPATIONS.

(B)

Fresh issue of loans:

Our client can take exposure in eligible companies/groups /individuals who comes under the purview of priority sector lending. Corporates , cooperatives should comply to the documentation requirements as desired by any banks for loan disbursal. The checklist of documents is provided below: 1. 2. 3. 4. 5. Income statement, Balance sheet of the organization for 3 years(if applicable) Company details, PAN, profile of promoters, business type. ITR for 3 years Bank account statement for the last 1 year Project feasibility report in case of any expansion plan .

For individuals seeking educational loan we need consistent academic record, placement brochure of the educational institution and collateral wherever applicable.

For giving loans to home buyers we would check the applicants job history, age ,other liabilities, eligibility of co applicant if any ,his/her qualification and so on.

For Companies having the rating of BBB+ or higher, disbursement is possible within 15 working days in Indian currency or other foreign currencies. We request you to submit your application along with the checklist to help us appraise you faster.

Please note that the tenure, applicable rate of interest , moratorium will differ from case to case .All loan disbursal are at the discretion of the lender.