Page 39 - Banking Finance June 2025

ARTICLE

Synergistic Financing:

Unlocking Co-

Lending Potential

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

Co-Lending has become a regular feature of our daily newspaper and magazines. Not even a day
goes by without seeing an article on Co-Lending. Several banks have entered into co-lending 'master
agreements' with registered Non-Banking Financial Companies (NBFCs) and more are in the
pipeline.

Introduction particular portion of their funds to specified sectors, like
weaker sections of the society, agriculture, MSME and social
Co-Lending has become a regular feature of our daily
newspaper and magazines. Not even a day goes by without infrastructure.
seeing an article on Co-Lending. 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,
pipeline. In 2020, the Reserve Bank of India (RBI) allowed typically a bank and a Non-Banking Financial Company
the co-lending model based on a prior agreement. (NBFC), partner to provide loans to borrowers. This helps
increase lending capacity and reduces risk for individual
In September 2018, the RBI had announced co-origination lenders. Each lender sets their own terms and conditions.
of loans by banks and NBFCs for lending to the priority This model leverages the strengths of both types of financial
sector. The arrangement entailed joint contribution of institutions to extend credit, especially to underserved
credit and sharing of risks and rewards. Co-lending or co- markets. Co lending is used in various industries like real
origination is a set-up where banks and non-banks enter estate, small business loans and personal loans.
into an arrangement for the joint contribution of credit for
priority sector lending.
Key Players in Co Lending
These guidelines were later amended in 2020 and Banks and Non-Banking Financial Companies (NBFCs) form
rechristened as co-lending models (CLM) by including partnerships to provide loans, with banks offering a part of
Housing Finance Companies and some changes in the the loan amount and NBFCs contributing the rest. This
framework. collaboration 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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