Page 42 - Banking Finance June 2025

ARTICLE

2. Loan Structuring: The loan is structured to leverage
the strengths of both institutions. Typically, the bank
provides a larger portion of the loan (e.g., 80%) while
the NBFC contributes the remaining amount (e.g.,
20%). This helps in risk-sharing and capital optimization.
3. Interest Rates and Fees: The interest rate is usually a
blended rate, combining the rates offered by both the
bank and the NBFC. Fees and charges are also agreed
upon, ensuring they are competitive and attractive to
borrowers.
4. Documentation and Processes: Both parties agree on
the documentation required from borrowers and
streamline their processes to ensure a seamless
experience. This includes standardizing application
forms, KYC (Know Your Customer) procedures and loan Applications of Co Lending
agreements.
Co lending offers a wide range of application and
5. Monitoring and Servicing: The responsibility for loan opportunities across various sectors, including retail,
monitoring and servicing is divided between the bank MSMEs, agriculture and housing finance. It can be utilized
and the NBFC. They establish protocols for regular for financing business loans, working capital requirements
monitoring, collections and handling defaults, ensuring and capital expenditure.
effective management of the loan portfolio.
This arrangement not only provides opportunities for
6. Regulatory Compliance: Both institutions ensure that
product diversification and expansion into new markets but
the co-lending arrangement complies with regulatory
also enable lenders to share the credit risk and leverage
requirements set by authorities like the Reserve Bank
each other's strengths.
of India (RBI). This includes adhering to guidelines on
loan classification, provisioning and reporting.
Advantages and Disadvantages of Co
By collaborating on these aspects, banks and NBFCs can Lending
offer more competitive and accessible loan products to Co lending in the financial services sector offers numerous
borrowers, leveraging their combined strengths and
advantages to banks, NBFCs and consumers.
resources.
To Banks
Co-Lending Infrastructure
Co lending presents an opportunity for banks to increase
Co-lending in India is supported by a robust infrastructure, their share of credit to priority sectors.
including the use of escrow accounts to ensure secure and
By partnering with NBFCs, banks can tap into their
efficient transactions.
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 portfolio.
capabilities and track record in co lending, as well as their
Helps banks meet regulatory requirements like priority
understanding of regulatory requirements, including the use
sector lending norms.
of escrow accounts.
Enables banks enhance their presence in underserved
A strong partnership built on trust and effective areas, bridging the credit gap and providing financial
communication is essential for long-term success. services to potential customers.

38 | 2025 | JUNE | BANKING FINANCE