RBI makes priority sector lending smooth; now all NBFCs can collaborate with banks to disburse loans

RBI Governor Shaktikanta Das today announced a ‘Co-Lending Model’ with an aim to improve the credit flow to the unserved and underserved sectors of the economy. With the new model, all non-banking finance companies (NBFCs), including housing finance companies (HFCs) will be allowed to collaborate with banks to undertake priority sector lending. This “Co-Lending Model” is expected to leverage the comparative advantages of banks and NBFCs in a collaborative effort, said Shaktikanta Das. In the year 2018, the RBI had put in place a framework on the co-origination of loans by banks, and only a certain category of Non-Banking Financial Companies (NBFCs) were allowed to partner with banks for lending to the priority sector subject to certain conditions. However, with the new rules, this has been extended to all the NBFCs (including HFCs), to make all priority sector loans eligible for the scheme and give greater operational flexibility to the lending institutions. 

The RBI’s decision to extend the scheme for co-lending to all NBFCs, HFC in respect of all eligible priority sector loans will allow greater operational flexibility to the lending institutions and is much welcomed, said Niranjan Hiranandani, President, ASSOCHAM. When the economy started opening up after the nationwide lockdown, NBFCs were hit by regional lockdowns, the uncertainty of business resumption, and a highly ambiguous macro scenario. “Business activity in September 2020 reached only 70-75 per cent of the last year’s level. Therefore, we expect a weak quarter from our NBFC universe, with flat AUM on-quarter but with visible signs of revival in disbursements,” said a report by Emkay. 

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Meanwhile,  the Monetary Policy Committee of RBI kept the repo rate and the accommoative stance unchanged once again. In another major announcement, the central bank raised the retail portfolio limits of banks to Rs 7.5 cr in respect of fresh loans and qualifying exposure and rationalised risk weights for all housing loans until 31 March 2022. The RBI expects that the economic recovery will be a 3-speed recovery, with variations across sectors. While manufacturing firms may see capacity utilisation in Q3, agri, consumer goods, power, and pharma sectors are likely to see quicker recovery, Shaktikanta Das added.