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- Recently, several banks have entered into co-lending ‘master agreements’ with registered Non-Banking Financial Companies (NBFCs), and more are in the pipeline. In 2020, the Reserve Bank of India (RBI) allowed the co-lending model based on a prior agreement.
- However, there are some criticisms associated with the co-lending.
Important points:
- In September 2018, the RBI had announced co-origination of loans” by banks and NBFCs for lending to the priority sector.
- The arrangement entailed joint contribution of credit and sharing of risks and rewards. 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.
- These guidelines were later amended in 2020 and rechristened as co-lending models (CLM) by including Housing Finance Companies and some changes in the framework.
- Under priority sector norms, banks are mandated to lend a particular portion of their funds to specified sectors, like weaker sections of the society, agriculture, MSME and social infrastructure.
- The primary focus of the ‘Co-Lending Model’ (CLM) is to “improve the flow of credit to the unserved and underserved sector of the economy.
- It also envisages making available funds to the ultimate beneficiary at an affordable cost.
- Underlying Idea: CLM seeks to better leverage the respective comparative advantages of the banks and NBFCs in a collaborative effort.
Way Forward
There is a need to give greater powers to the bank’s board in order to drive, review & oversight the decision-making process. And for that, the best talent must be recruited.
SOURCE: THE HINDU,THE ECONOMIC TIMES,MINT
