Page 33 - Banking Finance October 2022

ARTICLE

at the corresponding date of the preceding year. Presently, economy, RBI has introduced this new model of partnership
eight sectors were identified as Priority Sector. They are between banks and NBFCs on 5th November 2020 for Co-
1. Agriculture Lending to the Priority Sector.
2. MSME
With an object to improve the flow of credit and also to make
3. Export Credit
funds available to the un-served and under-served sectors
4. Education at an affordable cost Reserve Bank of India rechristened co-
origination of loans by banks and NBFCs for lending to
5. Housing
Priority Sector as "Co-Lending Model" (CLModel).
6. Social Infrastructure
7. Renewable Energy and Banks do have plenty of funds at lower cost for the purpose
of lending while Non-Banking Financial Companies (NBFCs)
8. Others
have the infrastructure for greater reach to un-served and
Reserve Bank of India and Commercial banks are exploring under-served population.
and innovating several options for meeting the regulatory
requirement and Government of India's guidelines. In RBI has provided greater operational flexibility under Co-
addition to direct lending to Priority Sector by banks to Lending Model by permitting banks to co-lend with all
individuals, many ways and means were explored to reach registered NBFCs (including HFCs) based on a prior
the unserved & underserved population using different agreement, but with strict regulatory guidelines on
methods of lending like outsourcing, Know Your Customer (KYC) and minimum share
1. Joint Liability Groups of the individual loans by NBFCs in their books. The main
advantage to Lending Institutions is that banks can claim
2. Self Help Groups
Priority Sector status in respect of their share of credit while
3. Engaging the services of Business Correspondents (BCs)
engaging in the CLModel. However, CLModel shall not be
to provide various services such as identification of
applicable to foreign banks with less than 20 branches in
borrowers, collection, recovery, follow-up and such
India.
other ancillary services
4. On-lending to eligible intermediaries like Micro Finance Salient features of Co-Lending Model
Institutions. On-lending means loans sanctioned by banks
1. Master Agreement:
to eligible intermediaries for onward lending only for
Banks & NBFCs are required to enter a Master
creation of Priority Sector assets
Agreement for implementing the CLM. Master
5. Co-lending by banks through NBFCs Agreement may contain necessary clauses on
Non-Banking Financial Companies (NBFCs) are having
advantage due to their agile nature and less stringent
regulation, enjoy greater penetration into the market but
frequently suffer from liquidity crises. NBFCs can lend and
also can make investments. As such their activities are
similar to that of banks. However, NBFC cannot accept
demand deposits, do not form part of the payment and
settlement system and cannot issue cheques drawn on itself.
Further, deposit insurance facility of Deposit Insurance and
Credit Guarantee Corporation is not available to depositors
of NBFCs.

Co-lending refers to a collective operation of two or more
entities in the financial sector. To address the challenge of
the rising credit gap within the unserved and underserved

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