Page 53 - Banking Finance March 2025

ARTICLE

Due Diligence: Conduct thorough due diligence on ensure compliance with agreed-upon policies and
borrowers, leveraging both entities' expertise and procedures.
resources. Third-Party Audits: Engage third-party auditors to

2. Operational Integration provide an unbiased assessment of the co-lending
System Integration: Ensure seamless integration arrangement and identify areas for improvement.
of IT systems to facilitate smooth data sharing and
loan processing. By implementing these strategies, banks and NBFCs can
effectively manage and mitigate the risks associated with
Standardized Processes: Standardize loan origina-
tion, documentation and servicing processes to co-lending, ensuring a more stable and successful partner-
minimize operational discrepancies. ship.

3. Risk Sharing Impact on Indian Economics:
Proportional Risk Sharing: Clearly define the pro- Co-lending can have a positive impact on the Indian economy
portion of risk each party will bear (e.g., 80% by by:
the bank and 20% by the NBFC) and adhere to this Increasing the availability of credit to various sectors.
structure.
Promoting financial inclusion by reaching underserved
Regular Monitoring: Implement regular monitor- markets.
ing and reporting mechanisms to track loan per-
formance and identify potential issues early. Stimulating economic growth through increased lend-
ing activity.
4. Regulatory Compliance
Adherence to Guidelines: Ensure compliance with The co-lending model has been encouraged by the Reserve
regulatory guidelines set by authorities like the Re- Bank of India (RBI) with guidelines that typically include an
serve Bank of India (RBI) to avoid legal and finan- 80-20 capital deployment ratio between the bank and the
cial penalties. NBFC. This collaboration between banks and NBFCs aims to
combine their respective capabilities and resources to en-
Transparent Practices: Maintain transparency in
all dealings, including clear communication with hance the lending experience for customers and contrib-
ute to the economic development of the country.
borrowers about the co-lending arrangement and
their rights.
The Future of Co-Lending
5. Diversification
Co-lending is emerging as a significant trend in the financial
Portfolio Diversification: Diversify the loan port- industry, offering a collaborative approach to lending that
folio across different sectors and borrower profiles combines the strengths of multiple financial institutions. As
to spread risk.
it gains traction in the financial services industry, the future
Geographical Spread: Expand lending activities looks promising. The joint contribution of credit by multiple
across various regions to mitigate regional eco- lenders offers benefits like financial inclusion, diversification,
nomic risks. reduced risk and access to larger loan amounts.

6. Customer Interface
This growing trend is set to disrupt the traditional lending
Single Point of Contact: Designate a single point
of contact for borrowers to streamline communi- industry, attracting more lenders and borrowers. With hous-
cation and reduce confusion. ing finance companies and other financial institutions em-
bracing co lending, there is potential to bridge the credit gap
Customer Education: Educate customers about and offer affordable cost loans to underserved customers.
the co-lending model, including the roles of both
the bank and the NBFC, to build trust and trans- The entire process, from application to recovery of inter-
parency. est, is streamlined, saving a lot of time for both lenders and
7. Regular Audits borrowers. Co-lending is poised to redefine the lending land-
Internal Audits: Conduct regular internal audits to scape, making it more inclusive, efficient and resilient.

48 | 2025 | MARCH | BANKING FINANCE