RBI allows all NBFCs to co-lend with banks under revised guidelines

Earlier, banks were only allowed to co-originate loans with non-deposit taking systemically important finance companies

The Reserve Bank of India (RBI) on Thursday allowed banks to co-lend with all registered non-banking finance companies (NBFCs), which include housing finance companies, to improve the credit flow to unserved and under-served sectors of the economy.

Earlier, banks were allowed to co-originate loans with ‘systemically important non-deposit taking finance companies’. This has now been revised by the central bank to provide greater operational flexibility to the institutions when it comes to lending to the priority sectors.

Under the co-lending model, banks have to take their share of the individual loans on a back-to-back basis on their books while NBFCs are required to retain a minimum of 20 per cent share of the individual loans on their books.

Both banks and NBFCs have to frame board-approved policies, based on which a master agreement will be signed between the two. The agreement will entail the criteria for selection of partner institutions, the specific product lines and areas of operation, along with provisions related to segregation of responsibilities, as well as customer interface and protection issues.

The pact may provide for a bank to mandatorily take its share of the individual loans as originated by the NBFC in its books or retain the discretion to reject certain loans, subject to its due diligence.

The RBI mentioned that a bank will not be allowed to enter into a co-lending arrangement with an NBFC belonging to the promoter group of the bank. And, under the model, banks can claim priority-sector status in respect of their share of credit, subjecting to conditions.

“The NBFC shall be the single point of interface for customers and shall enter into a loan agreement with the borrower, which shall clearly contain the features of the arrangement and the roles and responsibilities of NBFCs and banks,” the RBI said. The borrower will be charged an all-inclusive interest rate as may be agreed upon by both the lenders, which will have to establish a framework for monitoring and recovery of the loan. And, any assignment of a loan by a co-lender to a third party can be done only with the consent of the other lender.

On grievance redress, a suitable arrangement has to be put in place by the co-lenders to resolve any complaint registered by a borrower with the NBFC within 30 days, failing which the borrower would have the option to escalate the same with the concerned banking ombudsman/ombudsman for NBFCs or the Customer Education and Protection Cell in the RBI.