Under co-lending model all scheduled commercial banks may engage with NBFC to co-originate loans for the creation of priority sector assets
The RBI has issued guidelines for co-origination of loans by banks and NBFCs for lending to priority sector. Under it the banks are permitted to co-lend with all registered NBFCs (including HFCs) based on a prior agreement. The co-lending banks will take their share of the individual loans on a back-to-back basis in their books. However, NBFCs shall be required to retain a minimum of 20 per cent share of the individual loans on their books.
Objective of Co-Lending Model
The objective is to:
- to improve the flow of credit to the unserved and underserved sector of the economy
- make available funds to the ultimate beneficiary at an affordable cost, considering the lower cost of funds from banks and greater reach of the NBFCs
Important features
- The CLM shall not be applicable to foreign banks (including WOS) with less than 20 branches
- The bank shall also be required to comply with the Know Your Customer (KYC) Directions of RBI
- The NBFC shall be the single point of interface for the customers and shall enter into a loan agreement with the borrower
- All transactions (disbursements/ repayments) between the banks and NBFCs relating to CLM shall be routed through an escrow account maintained with the banks
- With regard to grievance redressal, suitable arrangement must be put in place by the co-lenders to resolve any complaint registered by a borrower with the NBFC within 30 days, failing which the borrower would have the option to escalate the same with the concerned Banking Ombudsman/Ombudsman for NBFCs or the Customer Education and Protection Cell (CEPC) in RBI
We hope you liked this article on Co-Lending Model by Banks and NBFCs. Here are some useful articles for you to read next:
Download this article as PDF
Click to go to RBI Grade B Preparation Page