Page 51 - Banking Finance March 2025

ARTICLE

4. Documentation and Processes: Both parties agree on
the documentation required from borrowers and
streamline their processes to ensure a seamless expe-
rience. This includes standardizing application forms,
KYC (Know Your Customer) procedures and loan agree-
ments.
5. Monitoring and Servicing: The responsibility for loan
monitoring and servicing is divided between the bank
and the NBFC. They establish protocols for regular
monitoring, collections and handling defaults, ensuring
effective management of the loan portfolio.

6. Regulatory Compliance: Both institutions ensure that
the co-lending arrangement complies with regulatory
requirements set by authorities like the Reserve Bank enable lenders to share the credit risk and leverage each
of India (RBI). This includes adhering to guidelines on other's strengths.
loan classification, provisioning and reporting.
Advantages and Disadvantages of Co
By collaborating on these aspects, banks and NBFCs can
offer more competitive and accessible loan products to Lending
borrowers, leveraging their combined strengths and re- Co lending in the financial services sector offers numerous
sources. advantages to banks, NBFCs and consumers.

Co-Lending Infrastructure To Banks
Co lending presents an opportunity for banks to increase
Co-lending in India is supported by a robust infrastructure,
including the use of escrow accounts to ensure secure and their share of credit to priority sectors.
efficient transactions. By partnering with NBFCs, banks can tap into their
expertise and reach in specific market segments.
When selecting a co lending partner, it's crucial to consider Allows banks to benefit from product innovations and
factors like reputation, financial stability and expertise in lower interest rates, ultimately expanding their loan
the target segment. Evaluate their technological capabili- portfolio.
ties and track record in co lending, as well as their under- Helps banks meet regulatory requirements like prior-
standing of regulatory requirements, including the use of
ity sector lending norms.
escrow accounts.
Enables banks enhance their presence in underserved

A strong partnership built on trust and effective communi- areas, bridging the credit gap and providing financial
services to potential customers.
cation is essential for long-term success.

Applications of Co Lending To NBFCs
NBFCs can leverage their expertise in niche sectors and
Co lending offers a wide range of application and opportu-
reach underserved customers.
nities across various sectors, including retail, MSMEs, agri-
culture and housing finance. It can be utilized for financing Partnering with banks grants NBFCs access to lower-
business loans, working capital requirements and capital cost funds and a wider customer base.
expenditure. This enables NBFCs to offer competitive interest rates
and customized loan products, enhancing credit flow
This arrangement not only provides opportunities for prod- to priority sectors and supporting financial inclusion ini-
uct diversification and expansion into new markets but also tiatives.

46 | 2025 | MARCH | BANKING FINANCE