RBI allows HFCs to lend with banks under co-origination model

By Ankur Mishra, 

The Reserve Bank of India (RBI) on Friday allowed housing finance companies (HFCs) to collaborate with banks for priority sector lending under co-origination model. In 2018, RBI had put in place a framework for co-origination of loans by banks and non-banking financial companies (NBFCs). However, HFCs were not allowed to co-lend with banks under this model. Lenders believe that move from RBI may bring down interest rates for HFCs. Although, this model has not taken a broad shape since inception, bankers said that latest move from RBI may bring best of banks and NBFC together.

Dinesh Kumar Khara, chairman, State Bank of India (SBI), said that the decision to operationalise the co-origination model is right as it brings the best of banks and NBFC together. This will surely increase the reach of the financial sector at such a critical point, he added.

In an interaction with CNBC TV 18, S S Mallikarjuna Rao, MD and CEO, Punjab national Bank (PNB), said the interest rate may come down for loans given by housing finance companies as a result of co-lending. Although, co-lending has not taken a broad shape since 2018, but we expect it to go little further at least in housing segment, he further said.

Some of the housing finance companies believe that co-lending model will help them to expand leverage capacities. Hardayal Prasad, MD and CEO, PNB Housing Finance, said that extension of co-lending model by the RBI will help expand leverage capacities of the HFCs and unlock value for us.

However, not all housing finance companies may be keen to avail the facility of co-lending. Siddhartha Mohanty, MD & CEO of LIC Housing Finance, said, “ We are not keen on co-origination as of now, as we already have a big presence across geographies.” Mohanty also highlighted shortcomings of co-lending model. “Banks and NBFCs have different risk appetite, and risk assessment differs for both parties.” There has to be convergence at some point of time, only then co-lending will progress, Mohanty said.

Sonam Chandwani, managing partner at KS Legal & Associates, said hiccups in IT integration may pose as a grave challenge to originate and scale-up.