Co-Lending Model by Banks and NBFCs to Priority Sector

November 23, 2020
Co-Lending Model by Banks and NBFCs

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
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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

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