The Reserve Bank of India (RBI) on Thursday allowed banks to co-lend with all registered non-banking finance companies (NBFCs), which includes housing finance companies (HFCs), to improve the credit flow to unserved and under-served sectors of the economy at affordable cost under the co-lending model.
Earlier, banks were allowed to co-originate loans with non-deposit taking systemically important finance companies. The earlier scheme has now been revised by the central bank to provide greater operational flexibility to the lending institutions.
Under the co-lending model, the banks’ have to take their share of the individual loans on a back-to-back basis on their books while the NBFCs are required to retain a minimum of 20 per cent share of the individual loans on their books.
Both the banks and NBFCs have to frame board approved policies for entering into the co-lending model, based on which a master agreement will be formed between the two lending institutions. The agreement will entail terms and conditions of the arrangement, the criteria for selection of partner institutions, the specific product lines and areas of operation, along with provisions related to segregation of responsibilities as well as customer interface and protection issues.
The agreement entered into by the two institutions may provide for the bank to mandatorily take their share of the individual loans as originated by the NBFC in their books or retain the discretion to reject certain loans subject to its due diligence.
The RBI has categorically mentioned that the bank will be not allowed to enter into co-lending arrangement with an NBFC belonging to the promoter group of the bank. And, under the model, banks can claim priority sector status in respect of their share of credit, subjecting to conditions.
“The NBFC shall be the single point of interface for the customers and shall enter into a loan agreement with the borrower, which shall clearly contain the features of the arrangement and the roles and responsibilities of NBFCs and banks”, the RBI said.
The borrower will be charged an all-inclusive interest rate as may be agreed upon by both the lenders and both the lenders have to establish a framework for monitoring and recovery of the loan. And, any assignment of a loan by a co-lender to a third party can be done only with the consent of the other lender.
As far as grievance redressal of customers is concerned, a suitable arrangement has to be be put in place by the co-lenders to resolve any complaint registered by a borrower with the NBFC within 30 days, failing which the borrower would have the option to escalate the same with the concerned Banking Ombudsman/Ombudsman for NBFCs or the Customer Education and Protection Cell (CEPC) in RBI.
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