Page 12 - Banking Finance November 2020

RBI CORNER

kets in a graded manner, effective India has 9,601 shadow banks, of which seeks to provide greater flexibility to
November 9. the top 50 account for 80% of market the lending institutions, the Reserve
The trading hour restrictions were put share by loans. Over the years, the flex- Bank of India (RBI) said in a release.
in place on April 7, in view of the na- ibility that accompanied loose regulation Under the CLM, banks will be permit-
has enabled NBFCs to serve last-mile
tional lockdown owing to the Covid ted to co-lend with all registered
customers. Between 31 March 2009
pandemic. The lockdown caused op- NBFCs (including HFCs) based on a prior
and 31 March 2019, the total assets of
erational dislocations, preventing the agreement, RBI said, adding that "the
NBFCs grew at a compounded annual
normal functioning of the markets. co-lending banks will take their share
growth rate of 18.6%, while bank bal-
"With the graded rollback of the ance sheets grew at 10.7%. of the individual loans on a back-to-
lockdown and easing of restrictions on back basis in their books".
the movement of people and function- Linkages have been deepening be- "However, NBFCs shall be required to
ing of offices, it has been decided to tween banks and shadow lenders. At retain a minimum of 20% share of the
the end of the last financial year,
restore trading hours for the regulated individual loans on their books."
NBFCs were the largest net borrowers
markets in a phased manner," the RBI The primary focus of the scheme, re-
said in a notification. of funds from the financial system, of christened as "Co-Lending Model"
which, more than half of the funds
Accordingly, market hours for most of were from banks. (CLM), is to improve the flow of credit
the segments will be extended until to the unserved and underserved sec-
3.30 pm, from 2 pm now. The markets The collapse of an infrastructure finan- tor of the economy and make available
will continue to open at 10 am, the cier in 2018, the government seizure funds to the ultimate beneficiary at an
of a mortgage lender in 2019, and the
central bank said. affordable cost, considering the lower
resulting cash crunch in the system re- cost of funds from banks and greater
NBFCs should convert into vealed flaws intrinsic to NBFCs. Many reach of the NBFCs, it added.
NBFCs found themselves cash-strapped
banks: Rao due to skewed asset-liability manage- As per a notification by RBI, NBFCs will

Speaking at an industry event, ment practices with short-term bor- be the single point of interface for the
Rajeshwar Rao, deputy governor in rowing funding long-term assets, im- customers and shall enter into a loan
charge of banking regulation and risk prudent lending practices, and lack of agreement with the borrowers. The
monitoring at Reserve Bank of India, due diligence coupled with ambitious agreement should clearly contain the
called for a calibrated and graded growth targets. features of the arrangement and the
regulatory framework for non-banking roles and responsibilities of NBFCs and
"It is imperative to strike a balance be-
finance companies (NBFCs) proportion- banks.
tween regulating the NBFCs more tightly
ate to their systemic significance. "The ultimate borrower may be
and the need to provide them the re-
Systemically important NBFCs must be quired flexibility. This will remain the charged an all-inclusive interest rate as
identified and subjected to a higher cornerstone while we imagine the future may be agreed upon by both the lend-
degree of regulation, he said, adding of regulation for NBFCs," Rao said. ers conforming to the extant guide-
there cannot be a 'one-size-fits-all' pre- lines applicable to both," RBI said.
scription in the regulatory approach RBI announces co-lending All transactions (disbursements/ repay-
for NBFCs. ments) between the banks and NBFCs
scheme for banks
"Such non-bank finance companies relating to CLM have to be routed
should have incentives either to con- RBI came out with a Co-Lending through an escrow account maintained
vert into a commercial bank or scale Model (CLM) scheme under which with the banks, in order to avoid inter-
down their network externalities within banks can provide loans along with mingling of funds.
NBFCs to priority sector borrowers
the financial system. This would make With regard to grievance redressal, RBI
based on a prior agreement.
the financial sector sound and resilient said suitable arrangement must be put
while allowing a majority of NBFCs to The CLM, which is an improvement over in place by the co-lenders to resolve any
continue under the regulation-light the co-origination of loan scheme an- complaint registered by a borrower
structure," Rao said. nounced by the RBI in September 2018, with the NBFC within 30 days. T

12 | 2020 | NOVEMBER | BANKING FINANCE