
A senior government official, who prefers to remain anonymous, has revealed that the Finance Ministry has instructed the State Bank of India (SBI) to establish a committee to address issues pertaining to the co-lending business model. This move comes after the Reserve Bank of India allowed banks to co-lend or co-originate loans with non-banking finance companies, including housing finance companies, in order to facilitate greater credit accessibility to underserved sectors of the economy. Non-banking finance companies are permitted to contribute a maximum of 20 percent according to the regulatory guidelines.
The official stated, “We have identified certain issues related to co-lending and hence we have requested SBI to form a committee. This committee will include representatives from major banks and non-banking financial services.”
Furthermore, the official disclosed that SBI will assign one of its officers to investigate the reasons behind the slow progress of the co-lending space.
“The committee will also examine why banks are hesitant to enter the co-lending space. This will help create a common ground for both banks and non-banking finance companies. Banks have suggested providing first loss cover, which would alleviate concerns and encourage participation in this field,” added the official.
In a recent development, the Department of Financial Services organized a meeting with prominent public sector banks such as SBI, Punjab National Bank, National Bank for Agriculture and Rural Development, Small Industries Development Bank of India, Microfinance Institutions Network, non-banking financial companies, and other microfinance institutions.
“We have encouraged banks and non-banking financial companies to enhance their co-lending activities,” the government official stated.
CRISIL Ratings has projected that the co-lending book of non-banking financial companies is expected to reach Rs 1 trillion by June 2024, with an annual growth rate of 35-40 percent in the medium term.
During the meeting, the Finance Ministry sought suggestions from stakeholders for the upcoming budget and the new government’s 100-day agenda.
“We discussed various agendas during the meeting, addressing issues ranging from technology to cybersecurity. Some suggestions have been noted for the future budget and the upcoming 100-day agenda,” said a senior government official.
Regarding the Reserve Bank of India’s draft project financing norms, the official stated, “All stakeholders will provide their feedback, which will be consolidated and submitted to the government. The Department of Financial Services will also comment on the draft norms.”
The recent draft guidelines proposed by the banking regulator suggest a phased 5 percent standard asset provision during the construction phase, even for existing projects.
The Finance Ministry has also expressed concern about the high lending rates of non-banking financial companies. “We have addressed the issue of high interest rates with non-banking financial companies and directed them to improve their recovery process,” said the government official.
During the meeting, non-banking financial companies requested the government to grant them access to the Unified Payments Interface (UPI) similar to banks. “Non-banking financial companies have also requested permission to issue credit cards,” stated a government official.
The Finance Ministry also conducted a review of the gold loan status of major public sector banks and found no issues.
“We asked some public sector banks to review their gold loan portfolios, and we have not found any issues,” said the official.
Recently, the Reserve Bank of India instructed non-banking financial companies involved in the gold loan business to strictly adhere to regulations regarding loan-to-value ratio, auction processes, and cash disbursement. This directive was issued after it was discovered that some of these companies had violated regulatory guidelines.
Co lending is an arrangement where multiple lenders partner to provide loans to borrowers. This helps increase lending capacity and reduces risk for individual lenders. Each lender sets their own terms and conditions. Co lending is used in various industries like real estate, small business loans, and personal loans.
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