Page 41 - Banking Finance June 2025

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Credit Score and History: A good credit score and a These regulations aim to create a single point of interface
stable credit history are crucial. Lenders will look at between banks and NBFCs, promoting transparency and
credit reports, including on-time payment history reducing risks for both parties involved.
and credit mix, to assess the future ability to repay the
loan. Terms & Conditions of Co-Lending
Income: Stable income is necessary to ensure that Arrangement
borrowers have the means to repay the loan. Lenders
may have different minimum income requirements. Co-lending arrangements operate under mutually agreed
terms and conditions, including the sharing of credit risk and
Debt-to-Income Ratio (DTI): This ratio represents the interest income. The Reserve Bank of India and the Ministry
portion of a borrower's gross monthly income that goes of Finance have issued guidelines to regulate these
toward monthly debt service. A lower DTI indicates a arrangements, ensuring compliance with regulatory
better ability to take on additional debt.
requirements and establishing a framework for seamless
Collateral: For secured loans, lenders may require collaboration.
collateral, such as real estate or other valuable assets.
Age Limit: For certain loans like home loans, there The agreement outlines the roles, responsibilities and
might be an age limit for co-applicants, typically liabilities of both the bank and the NBFC, creating a clear
between 18 and 65 years. understanding of their respective contributions. This
tripartite agreement is crucial in facilitating co-lending,
Relationship: Some banks prefer couples as co-
applicants for home loans, assessing the combined allowing banks and NBFCs to jointly contribute credit and
income for loan eligibility. provide financial services to underserved customers at an
affordable cost.
These criteria can vary depending on the lender and the
type of loan. It's important for potential co-borrowers to In a co-lending arrangement, banks and NBFCs collaborate
understand the specific requirements set by the lending to decide on loan terms through a structured process. Here
institutions before pursuing a joint loan application. This are the key steps involved:
knowledge ensures that both parties are prepared and 1. Risk Assessment and Credit Policies: Both parties
meet the necessary criteria, leading to a smoother loan conduct their own risk assessments and establish credit
approval process. policies. They agree on the criteria for borrower
eligibility, loan amount, interest rates and repayment
Co-Lending Regulations terms based on their respective risk appetites and
regulatory guidelines.
Co-lending, as a rapidly emerging trend in finance, needs
to be regulated by the Reserve Bank of India (RBI) and the
Ministry of Finance. To serve this purpose, regulators have
issued regulations and guidelines to ensure the safety of
borrowers and lenders alike. One such regulation issued by
the RBI in November 2020 requires banks to maintain a
minimum 20% share of the individual loans co-originated
by them with NBFCs to avoid direct exposure to potential
concentration risk.

This move was made to mitigate the potential concentration
risk that may arise due to the involvement of a large
number of NBFCs in co-lending arrangements. Additionally,
the RBI has mandated that banks must ensure that the
NBFC partner complies with all relevant norms and
regulations to further minimize direct exposure to risks.

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