How co-lending, gold loans will change

The Reserve Bank of India (RBI) has proposed changes to harmonize lending norms across regulated entities.

- Anshika Kayastha

Two major frameworks proposed as part of the monetary policy statement on 9 April pertain to co-lending and lending against gold ornaments and jewellery—both popular loan segments for lenders and borrowers alike.

Mint takes a look at what these proposed norms could mean for the sector and how they will impact lending in these segments:

What are the proposed co-lending norms?

The biggest takeaway is that co-lending has now been extended to all regulated entities as against the current norm of only banks and non-banking financial services companies (NBFCs) being allowed to co-lend together. Co-lending refers to joint funding of a loan portfolio in a pre-agreed proportion, involving revenue-and risk-sharing, with or without sourcing and management arrangement.

This effectively means that two banks or two NBFCs can co-lend an advance. Given the significantly higher number of NBFCs in the country, this capital-light model is seen beneficial for small, mid-sized and digital NBFCs, which will now be able to work with larger or traditional NBFCs than waiting for a banking partner.

Lenders will also be allowed to provide a default-loss guarantee of up to 5% of loans outstanding under a co-lending or sourcing arrangement.