The Reserve Bank of India (“RBI”) on 05th September 2020 issued a circular directed to all Scheduled Banks and Non-Banking Financing Companies regarding joint contribution of credit by both the lenders. This is in continuation of the RBI circular issued on September 21, 2018 on co-origination of loans by Banks and NBFCs.
The 2018 scheme has now been revised to provide improved flow of credit to the unserved and undeserved sector of the economy so as to make the funds available to them at a lower cost, by availing benefits from both the lending channels.
The Scheme has permitted banks to co-lend with all registered NBFCs including the Housing Finance Companies where banks have been advised to take their share of the individual loans on a back-to-back basis in their books. However, NBFCs have been advised to retain a minimum of 20% share of the individual loans on their books.
Both the lenders have been advised to formulate policies in the regard and make the same available on their websites. Based on the board approved policies, a Master Agreement shall be entered into between the parties which shall outline all the details of such an arrangement between the two partner institutions including the terms and conditions, partner selection criteria, areas of operation etc. It shall also contain full disclosure of the arrangement between the two parties and shall clearly specify the manner of appropriation between the co-lenders, contain necessary clauses on representation and warranties etc.
Some Key Pointers:
- Banks shall not be allowed to enter into co-lending arrangement with an NBFC belonging to the promoter Group.
- This new co-lending model shall not be applicable to foreign banks, including Wholly Owned Subsidiaries, with less than 20 branches.
- The NBFCs shall be the single point of interface for the customers.
- Customer’s explicit consent to be taken after full disclosure, under this co-lending model.
- The co-lending banks and NBFCs shall maintain each individual borrower’s account for their respective exposures.
To read the full RBI circular, please click on the link.
To read the 2018 RBI circular, please click on the link.