Co-lending committee to submit report to finance ministry by next month

After the committee submits the report, the Department of Financial Services is expected to formulate guidelines to boost the co-lending space

A committee on co-lending, led by a senior State Bank of India (SBI) official, will submit its recommendations to the finance ministry (FinMin) next month, according to a source familiar with the matter.

In May 2024, the Department of Financial Services (DFS), a division of the finance ministry, had asked SBI to establish a committee to encourage co-lending between commercial banks and non-banking financial companies (NBFCs) by addressing issues related to its business model.

“On the recommendation of DFS, we have set up a committee on co-lending, comprising six members and its chairman. The first meeting of the panel was held on May 31. The next meeting is scheduled for June 28. We are required to submit the report to DFS by next month," said the source.

The committee is led by SBI's Deputy Managing Director Surender Rana, with representation from Punjab National Bank, Union Bank of India, and Central Bank of India from the banking sector. Additionally, three NBFCs are having representation on the panel.

“In the first meeting, we discussed strategies to escalate co-lending. Everyone has been asked to submit their suggestions for the June 28 meeting," stated another source.

The source further highlighted that the committee will convene to discuss and prepare a report for DFS aimed at enhancing co-lending, with specific focus on MSMEs. The report will identify existing bottlenecks and recommend regulatory and policy adjustments or solutions to facilitate improved access to credit.

After the committee submits its report, the DFS is expected to formulate guidelines to boost the co-lending space.

The Reserve Bank of India (RBI) has permitted banks to co-lend or co-originate loans with NBFCs, including housing finance companies, to enhance credit flow to the unserved and underserved sections of the economy. According to the norms, NBFCs are required to retain a minimum of 20 per cent share of the individual loans on their books.

CRISIL Ratings predicts that co-lending portfolios of NBFCs will likely reach Rs 1 trillion by the end of June 2024, with an annual growth rate of 35-40 per cent over the medium term.

Earlier, a senior finance ministry official had said that the committee would also examine why banks are hesitant to enter the co-lending space.

“This initiative aims to create common ground for both banks and NBFCs. Banks have suggested provision of first loss cover to facilitate their entry into this domain, with 80 per cent of the funding coming from banks and 20 per cent from NBFCs,” the official had said.