TEST SERIES 
Date : 14 Dec 2021
Bank-NBFC Co-lending
Tags :Why in News?
- Several banks have entered into co-lending 'master agreements' with NBFCs, and more are in the pipeline.
Co-Lending Model (CLM)
- In September 2018, the RBI had announced the “co-origination of loans” by banks and Non-Banking Financial Companies (NBFCs) for lending to the priority sector.
- Co-lending or co-origination is a set-up where banks and non-banks enter into an arrangement for the joint contribution of credit for priority sector lending.
- In this model both the lenders share risks and rewards.
- Aim is to improve the flow of credit to the unserved and underserved segment of the economy at an affordable cost.
- This happens as banks have lower costs of funds and NBFCs have greater reach beyond tier-2 centers.
Risk in co-lending
- Under the CLM, NBFCs are required to retain at least a 20 percent share of individual loans on their books. This means 80 percent of the risk will be with the banks — who will take the big hit in case of a default.
- The RBI guidelines provide for the NBFCs to be the single point of interface for customers, and to enter into loan agreements with borrowers. In effect, while the banks fund the major chunk of the loan, the NBFC decides the borrower.
Sources: The Hindu, Economic Express
