Co-origination of priority sector loans may boost book in the long run

While growth opportunity is high, some experts are also cautious about a possible increase in the cost of funds for NBFCs

During Wednesday’s monetary policy meet, the Reserve Bank of India (RBI) permitted all scheduled commercial banks to co-originate priority sector loans with non-deposit-taking systematically important non-banking financial companies (NBFCs).

Experts believe co-origination would be a win-win for both banks and NBFCs, providing scope to boost the latter's performance in the long term. Though securitisation, or business correspondence mechanism, is currently in place where NBFCs or microfinance firms source loans and pass them on to banks’ books against a fee, the sourcing of loans itself is constrained by the limited risk appetite of NBFCs.

The latest nod by RBI can change this, and