Article Title - New Model of Co-Lending in Financial Sector
Source - Vinod Kothari Consultants
Date - November 6, 2020
Link - Click Here for the Article
Summary
The Reserve Bank of India (RBI) has announced the Co-Lending Model (CLM) as a new regulatory framework that encourages joint lending by banks and all non-banking financial companies (NBFCs) including housing finance companies (HFCs), to improve the flow of credit for priority sector lending (PSL). Under the priority sector norms, banks are mandated to lend a portion of their funds to specified sectors, such as: agriculture; micro, small and medium enterprises; education; export credit; housing; renewable energy; social infrastructure and others. This article explores the key features of the co-lending processes, changes from the erstwhile co-lending guidelines and how CLM can have a wider reach and make funds available to the ultimate beneficiary at an affordable cost.
The article also points out the distinction between direct assignments, outsourcing and co-lending, the sharing of risks and rewards among the joint lenders, their respective roles and responsibilities, and the applicability of CLM to non-PSL loans. In the article, the operational aspects of CLM entail discussion on escrow account, creation of security and charge, and a framework for monitoring and recovery of the loan, as per mutually agreeable terms. The article highlights that CLM can provide greater operational flexibility to the customers and the lending institutions.