Banks, NBFCs may need IT overhaul to meet RBI co-lending norms: Bankers

Bankers say RBI's co-lending draft norms may require significant IT upgrades and clarification on the CLM 2 model to ensure compliance and operational readiness

Draft guidelines on colending, if they take effect in their current form, require information-technology (IT) systems to be beefed up, according to banks and non-banking financial companies (NBFCs).

 

The Reserve Bank of India (RBI) had issued the draft guidelines in April.

 

The regulator extended the scope of colending to all regulated entities and also made it applicable to non-priority sectors. 

 

The move is to enhance regulatory clarity, improve credit flow, and ensure real-time information about borrowers as colending practices evolve beyond traditional models. 

 

The model also aims to enhance credit flow to underserved sectors.

 

“According to the guidelines, the origination and disbursement of a loan should happen at the same time. Therefore, as an NBFC, we have to update our systems to provide real-time information. It will take a better part of this financial year to completely integrate the systems both ways,” said a senior official at an NBFC.

 

A concern with the draft guidelines is that it is silent on colending model 2 (CLM 2), which means banks and NBFCs have to make changes to colending, according to bankers and NBFC officials.

 

In CLM 2, banks and NBFCs share credit risks in the 80:20 ratio, with a minimum of 20 per cent of the loan retained by an NBFC until maturity. In CLM 1, both parties originate and disburse loans simultaneously.

 

“Usually banks and NBFCs operate on CLM 2. The focus in the guidelines is more on CLM 1. This will cause banks and NBFCs to make major technological changes. So there should be clarification on them in the new guidelines,” said a senior bank official with a state-owned bank.

 

Operational challenges in terms of amalgamating IT systems may slow the pace of colending, said senior banking and NBFC officials. 

 

NBFCs have submitted their feedback to the Finance Industry Development Council (FIDC). It will present those suggestions before the RBI shortly, said a person aware of the developments.

 

Banks have been in talks with the regulator for some time to minimise operational hurdles.

 

“At least six months are required to upgrade the technology. Banks and NBFCs are trying to fix tech-related challenges regarding colending,” said a senior banking official with a large state-owned bank.

 

He added feedback would be given to the regulator soon.

 

Bankers said despite expanding the scope of colending to all regulated entities, lenders would like to concentrate on top-rated NBFCs because they did not want to compromise on their underwriting standards.

 

Some NBFCs such as Piramal Enterprises, UGRO Capital, and Shriram Finance are active in colending. So are most banks, public-sector or private.