Page 34 - Banking Finance October 2022

ARTICLE

representations and warranties which the NBFC shall
be liable in respect of share of loans taken into its books
by the Bank. If the Agreement entails a prior,
irrevocable commitment on the part of the Bank to
consider share of individual loans already originated by
the NBFC, the arrangement must comply with the
extant guidelines on Managing Risks & Code of Conduct
in Outsourcing of Financial Services by Banks

2. KYC guidelines:
Banks are also required to comply with the directions
of KYC to rely on customer due diligence done by a third
party

3. Escrow account:
CLM specifies the opening of an escrow account for the
6. Grievance redressal:
purpose of disbursals, collections, etc. The co-lending
Necessary arrangements for Grievance redressal must
banks & NBFCs were obligated to maintain every
be made by NBFC and Bank to resolve any complaints
borrower's account for proper exposures assessment
registered by a borrower with NBFC within 30 days,
4. Minimum Holding Period:
failing which the borrower would have the option to
If Bank can exercise its discretion regarding taking into escalate the same with the concerned Ombudsman for
its books the loans originated by NBFC as per the
NBFCs or the Customer Education and Protection Cell
Agreement, the arrangement will be similar to a direct
(CEPC) in RBI or Banking Ombudsman.
assignment transaction. Accordingly, the taking over
bank shall ensure compliance with all the requirements
7. Monitoring & Recovery:
in terms of Guidelines on Transactions Involving Transfer
Banks and NBFCs shall maintain individual borrower's
of Assets through Direct Assignment of Cash Flows and
account for their respective exposures. However, all
the Underlying Securities with exception of Minimum
transactions (disbursements/ repayments) between the
Holding Period (MHP) which shall not be applicable in
banks and NBFCs relating to CLModel shall be routed
such transactions undertaken in terms of this CLM. The
through an escrow account maintained with the banks,
MHP exemption shall be available only in cases where
in order to avoid inter-mingling of funds. Banks and
the prior agreement between the banks and NBFCs
contains a back-to-back basis clause and complies with NBFCs shall establish a framework for monitoring &
all other conditions recovery of loans. Banks and NBFCs shall arrange for
creation of security and charge as per agreed terms.
5. Loan agreement:
Banks and NBFCs shall adhere to the asset classification
NBFC shall enter into a loan agreement with Customers
and provisioning norms as per regulatory guidelines.
(borrowers). All details of the arrangement including
Loans under CLModel shall be included in the scope of
roles and responsibilities of NBFC and Bank shall be
internal and Statutory Audit within Bank & NBFC as per
disclosed to customers and their explicit consent should
internal guidelines and regulatory requirements.
be obtained. The borrower may be charged an all-
Assignment of a loan by Bank or NBFC to a third party
inclusive interest rate as may be agreed by NBFC and
can be done only with mutual consent.
Bank conforming to the agreed guidelines. Guidelines
relating to Customer service, Fair practices code and
8. BCP:
other obligations of Bank & NBFC shall be applicable.
NBFC should be able to generate a single unified Bank &NBFC shall have a Business Continuity Plan (BCP)
statement of the Customer, through appropriate to ensure uninterrupted service to their borrowers till
information sharing arrangements with the Bank. repayment of loans under CLModel.
34 | 2022 | OCTOBER | BANKING FINANCE