Liquidity Support
Many times, the UCB has a cash crunch in the first bucket of ALM.This is for a very short duration. Banks normally borrow from the market either through call money or Notice Money. But this window is not available to Banks which do not have NDS/CCIL membership and then they are dependent on Banks of which they are sub members for Gsec maintenance. Here for a short money, they end up funding the margin of service provider and borrow at little higher rate. UO may design a short-term liquidity product against collateral of SLR or NON SLR [tradeable one] and earmark the same in favour of UO to raise short term fund.
Liquidity infusion for over 6 months
Sometimes the UCB faces liquidity crunch in the 4th Bucket of 180 days. On the similar lines against collateral and best rate basis a 180 days lending for genuine liquidity crunch UO may have a product funding.
Distress Funding
Many a times UCB faces run for no fault of theirs due to some market rumours’ Bank is otherwise good. But faces sudden liquidity crisis. Normally, in such cases, they sell the SLR/NONSLR securities at a loss in the market and meet the cash crunch. Here UO has a perfect role to play so that they do not sell securities in the market but do a repo transaction with UO and raise funds at ease and that to at a short notice. This will also be a collaterised lending for a short duration.
Infusion of Capital
The UO can help in contributing to Tier 2 capital of UCBs with collateral. UCBs find it difficult to raise Tier 2 capital for the reason that there is no DICGC cover as also a lock in for the entire product journey for the investors which extends to 10 years’ time as per current norms. We need to discuss and decide on the tenure part and request RBI for dispensation on tenure of investments by UO can be linked to desired CRAR level. This will enable UCB to tide over the CRAR crisis and the revenue of UO will also get boost, this will also be at a collateral. We may also think of obtaining mortgage of property belonging to concerned UCBs for proper security cover.
Refinancing of Standard assets
Many UCBs have a good portion of Standard Assets against which they can obtain refinance from UO. The rates and conditions of other higher financing agencies like NHB/NABARD are not favouring UCBS. This niche can be captured by UO and which will generate good revenue for UO. The principle security will be assignment of collections against which refinance is given. There will be no collateral available. This can be given to UCBs who are in B and above rating consistently for the last 3 years as per RBI.This product will give adequate support to take up higher stakes in their own products.
