Page 48 - Banking Finance March 2025

ARTICLE

Unlocking Financial

Synergy: The Power

of Co-Lending

Arun Kumar Gupta
Faculty - Credit
Chief Manager
Zonal Learning Centre-Mangaluru
Union Bank Of India

Co-lending is an arrangement where multiple lenders, typically a bank and a Non-Banking Financial
Company (NBFC), partner to provide loans to borrowers. This helps increase lending capacity and
reduces risk for individual lenders. Each lender sets their own terms and conditions. This model
leverages the strengths of both types of financial institutions to extend credit, especially to
underserved markets.

Introduction particular portion of their funds to specified sectors, like
weaker sections of the society, agriculture, MSME and so-
Co-Lending has become a regular feature of our daily news-
paper and magazines. Not even a day goes by without see- cial infrastructure.
ing an article on Co-Leaning. Several banks have entered
into co-lending 'master agreements' with registered Non- What is Co-Lending
Banking Financial Companies (NBFCs) and more are in the Co-lending is an arrangement where multiple lenders, typi-
pipeline. In 2020, the Reserve Bank of India (RBI) allowed cally a bank and a Non-Banking Financial Company (NBFC),
the co-lending model based on a prior agreement. partner to provide loans to borrowers. This helps increase
lending capacity and reduces risk for individual lenders. Each
In September 2018, the RBI had announced co-origination lender sets their own terms and conditions. This model le-
of loans by banks and NBFCs for lending to the priority sec- verages the strengths of both types of financial institutions
tor. The arrangement entailed joint contribution of credit to extend credit, especially to underserved markets. Co
and sharing of risks and rewards. Co-lending or co-origina- lending is used in various industries like real estate, small
tion is a set-up where banks and non-banks enter into an business loans and personal loans.
arrangement for the joint contribution of credit for priority
sector lending. Key Players in Co Lending
Banks and Non-Banking Financial Companies (NBFCs) form
These guidelines were later amended in 2020 and rechris- partnerships to provide loans, with banks offering a part of
tened as co-lending models (CLM) by including Housing Fi- the loan amount and NBFCs contributing the rest. This col-
nance Companies and some changes in the framework. laboration allows both parties to share the risk and profit
generated from the loan, resulting in a smoother and more
Under priority sector norms, banks are mandated to lend a streamlined customer experience.

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