Page 44 - Banking Finance June 2025

ARTICLE

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
co-lending, ensuring a more stable and successful
origination, documentation and servicing processes
to minimize operational discrepancies. partnership.
3. Risk Sharing Impact on Indian Economics:
Proportional Risk Sharing: Clearly define the
proportion of risk each party will bear (e.g., 80% Co-lending can have a positive impact on the Indian economy
by the bank and 20% by the NBFC) and adhere to by:
Increasing the availability of credit to various sectors.
this structure.
Regular Monitoring: Implement regular Promoting financial inclusion by reaching underserved
monitoring and reporting mechanisms to track loan markets.
performance and identify potential issues early. Stimulating economic growth through increased
4. Regulatory Compliance lending activity.
Adherence to Guidelines: Ensure compliance with
regulatory guidelines set by authorities like the The co-lending model has been encouraged by the Reserve
Reserve Bank of India (RBI) to avoid legal and Bank of India (RBI) with guidelines that typically include an
80-20 capital deployment ratio between the bank and the
financial penalties.
NBFC. This collaboration between banks and NBFCs aims to
Transparent Practices: Maintain transparency in combine their respective capabilities and resources to
all dealings, including clear communication with enhance the lending experience for customers and
borrowers about the co-lending arrangement and
contribute to the economic development of the country.
their rights.
5. Diversification The Future of Co-Lending
Portfolio Diversification: Diversify the loan
Co-lending is emerging as a significant trend in the financial
portfolio across different sectors and borrower industry, offering a collaborative approach to lending that
profiles to spread risk.
combines the strengths of multiple financial institutions. As
Geographical Spread: Expand lending activities it gains traction in the financial services industry, the future
across various regions to mitigate regional looks promising. The joint contribution of credit by multiple
economic risks. lenders offers benefits like financial inclusion, diversification,
6. Customer Interface reduced risk and access to larger loan amounts.
Single Point of Contact: Designate a single point
of contact for borrowers to streamline This growing trend is set to disrupt the traditional lending
communication and reduce confusion. industry, attracting more lenders and borrowers. With
housing finance companies and other financial institutions
Customer Education: Educate customers about embracing co lending, there is potential to bridge the credit
the co-lending model, including the roles of both
the bank and the NBFC, to build trust and gap and offer affordable cost loans to underserved
transparency. customers.
7. Regular Audits The entire process, from application to recovery of interest,
Internal Audits: Conduct regular internal audits to is streamlined, saving a lot of time for both lenders
ensure compliance with agreed-upon policies and and borrowers. Co-lending is poised to redefine the
procedures. lending landscape, making it more inclusive, efficient and
Third-Party Audits: Engage third-party auditors to resilient.

40 | 2025 | JUNE | BANKING FINANCE