RBI announces co-lending scheme for banks, NBFCs

In a bid to improve the flow of credit to the underserved sections of the economy, the Reserve Bank of India (RBI) on Thursday issued guidelines under the co-origination model so that non-banking finance companies (NBFCs) and banks can jointly lend. The model envisages a joint lending process such that risks and rewards are shared. As per the guidelines, NBFCs need to retain a minimum of 20% share of the loans on their books.

The regulator has also prohibited banks from entering into a co-lending arrangement with an NBFC belonging to their promoter group. RBI had earlier permitted housing finance companies (HFCs), along with other NBFCs to adopt co-lending model with banks. Lenders believe that co-lending will bring down interest rates for HFCs.

“It has been decided to provide greater operational flexibility to the lending institutions, while requiring them to conform to the regulatory guidelines on outsourcing, KYC (know your customer), etc,” RBI said in its release. The primary focus of the revised scheme, rechristened as the Co-lending Model (CLM), is to improve the flow of credit to the unserved and underserved sector of the economy. It also aims to 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, RBI further said.

A senior bank executive said, “The borrowers of HFCs will benefit, as co-lending with banks will bring down interest rates.” “The latest move from RBI may bring best of banks and NBFC together,” he added. In 2018, RBI had put in place a framework for co-origination of loans by banks and non-banking financial companies (NBFCs). However, HFCs were not allowed to co-lend with banks under this model.

Sonam Chandwani, managing partner at KS Legal & Associates, said that move by RBI will help banks tackle credit growth and ensure that liquidity percolates down to the last mile to meet priority sector lending targets. The circular further clarifies that outstanding loans in terms of circular dated September 21, 2018, would continue to be classified under priority sector till their repayment or maturity, she added.

The regulator has given special attention to grievance redressal for borrowers in the co-lending model. 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, RBI said. After the deadline, the borrower would have the option to escalate the same with the concerned banking ombudsman or ombudsman for NBFCs. The borrower can also reach out to the customer education and protection cell (CEPC) in RBI, after the deadline.