Unlocking Financial Synergy: The Power of Co-Lending

Co-lending is an arrangement where multiple lenders, typically a bank and a Non-Banking Financial Company (NBFC), partner to provide loans to borrowers. This helps increase lending capacity and reduces risk for individual lenders. Each lender sets their own terms and conditions. This model leverages the strengths of both types of financial institutions to extend credit, especially to underserved markets.

- Arun Kumar Gupta

Introduction

Co-Lending has become a regular feature of our daily newspaper and magazines. Not even a day goes by without seeing an article on Co-Leaning. 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.

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.

What is Co-Lending

Co-lending is an arrangement where multiple lenders, typically a bank and a Non-Banking Financial Company (NBFC), partner to provide loans to borrowers. This helps increase lending capacity and reduces risk for individual lenders. Each lender sets their own terms and conditions. This model leverages the strengths of both types of financial institutions to extend credit, especially to underserved markets. Co lending is used in various industries like real estate, small business loans and personal loans.

Key Players in Co Lending