Govt aims to promote co-lending between Banks and NBFCs, Committee to submit its report soon

According to a source familiar with the matter, a committee on co-lending, headed by a senior State Bank of India (SBI) official, will be submitting its recommendations to the finance ministry (FinMin) next month. The committee was established in May 2024 by the Department of Financial Services (DFS), a division of the finance ministry, with the aim of promoting co-lending between commercial banks and non-banking financial companies (NBFCs) by addressing related issues.
The committee, chaired by SBI’s Deputy Managing Director Surender Rana, consists of six members including representatives from Punjab National Bank, Union Bank of India, Central Bank of India, and three NBFCs. During the first meeting held on May 31, strategies to boost co-lending were discussed, and all members have been asked to submit their suggestions for the upcoming June 28 meeting.
The committee’s main focus is to enhance co-lending, particularly for micro, small, and medium enterprises (MSMEs). The report that will be prepared by the committee for DFS aims to identify existing obstacles and propose regulatory and policy adjustments to facilitate better access to credit.
Once the committee submits its report, the DFS is expected to develop guidelines to foster growth in the co-lending sector. The Reserve Bank of India (RBI) has already granted permission for banks to co-lend or co-originate loans with NBFCs, including housing finance companies, in order to increase credit flow to underserved sections of the economy. According to norms, NBFCs are required to retain at least 20 percent of the individual loans on their books.
CRISIL Ratings predicts that the co-lending portfolios of NBFCs will reach Rs 1 trillion by the end of June 2024, with an annual growth rate of 35-40 percent over the medium term.
The committee will also investigate why banks have been hesitant to enter the co-lending space. A senior finance ministry official previously stated that the initiative aims to find common ground for both banks and NBFCs. Banks have suggested the provision of first loss cover to facilitate their entry into this domain, with 80 percent of the funding coming from banks and 20 percent from NBFCs.