Page 35 - Banking Finance October 2022

ARTICLE

Advantages of CLM Short comings
1. CL Model is helpful in increased credit flow to healthy Reserve Bank of India's Co-Lending Model has been around
Priority Sector loans for a while now, but it has many short comings
2. Contribute to the country's financial inclusion imperative 1. CL Model is not applicable to Small Finance Banks,
Regional Rural Banks, Urban Cooperative Banks and
towards building an AtmaNirbhar Bharat
Local Area Banks
3. CL Model is applicable not only to NBFCs but also
Housing Finance Companies 2. CL Model shall not be applicable to foreign banks with
less than 20 branches
4. Lower Credit risk
3. 80% of the total credit risk under this model shall be on
5. Convenient repayment schedule to the ultimate
the bank's loan book
borrowers
6. Aim is to reach out to a large section of society by 4. CL Model is just old wine in new bottle as it is an
offering easy, convenient, and efficient credit solutions upgraded model of Co-origination of loans scheme
7. CL Model can be instrumental in increased consumption 5. CLModel will be successful only when there is good team
there by providing for robust growth in the economy dynamics exist between Banks & NBFCs
8. CL Model provides fund flow in smoother and seamless 6. There may be good number of operational issues for
way for NBFCs both Banks & NBFCs
9. As it is with collaboration, both organisations i.e., Banks 7. CL model may not be suitable for all sectors of the
and NBFCs mutually make progress economy
10. Due to CL model, flow of credit reaches the unserved
8. NBFCs are required to maintain at least of 20% share
and under-served population
of individual loans in their books due to which many tech
11. Lot of potentiality for Digital products savvy companies cannot participate
12. CL model will be instrumental in marching the country
towards the vision of a $1-trillion economy Suggestions
13. CL model will help MSMEs to avail customized lending While realising the needs of unserved and underserved,
solutions Banks has to keep in mind the increased expectation of it's
14. Competitive rate of interest existing Customers by using Digital technology to resolve
many operational issues
15. Significant reduction in processing and sanction of loan
applications leading to reduced turn-around time
Conclusion
16. Allows traditional lenders to associate with Fintech firms
CLModel provides an alternate opportunity to banks to give
17. Provide an excellent avenue for NBFCs to grow their
more funds and allows to link with Fintech firms that have
assets under management
greater reach of un-served and under-served population.
18. Sharing the risk and returns
The model also provides a platform for NBFCs to grow. It
will help NBFCs to mitigate the funding crisis and capital
constraints and take part in the sustainable credit to the
priority sector along with Banking Institutions. Banks &
NBFCs have to make sure that there are efficient systems
placed to implement proper Due Diligence. Effective
functioning of NBFC required to deal and negotiate with the
borrowers. Innovative models like CLModel will evolve and
grow to fulfil the credit requirements of the Priority Sector
segments in particular and Financial Inclusion in general.

Sources:
1. RBI website
2. https://bfsi.economictimes.indiatimes.com

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