Banks back status quo on co-lending

Economic Times

a day ago

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New Delhi: Banks have reached out to the Reserve Bank of India (RBI) suggesting continuing with the current co-lending model with non-banking finance companies (NBFCs).The RBI has sought suggestions on draft guidelines on Co-lending Arrangements Directions, 2025 issued in April, said officials aware of the developments.Under the proposed draft guidelines, the RBI has suggested restricting the co-lending model to where both a bank and NBFC jointly originate and disburse loans.Under the current co-lending model (CLM-2), NBFCs originate loans from their books and later assign part of the loan to the bank. This helps NBFCs maintain liquidity and speed up the process. The RBI now wants to shift to CLM-1, where both bank and NBFC disburse loan jointly from the outset."We want both models to exist and the decision should be left to individual banks and other regulated entities," said a bank executive on suggestions made last month through the Indian Banks' Association An email sent to the RBI did not elicit a response until press time."Each single loan under the arrangement shall be shared among the funding regulated entities right from the time of first disbursement. This shall be done on the basis of a non-discretionary ex ante Inter Creditor Agreement with joint nature of rights," the RBI noted in its draft guidelines.Lenders have reasoned that at present around 80% of co-lending is done through CLM-2, which gives the banks a choice to pick loan portfolios they want to fund.According to a report by CareEdge Ratings, each loan under the arrangement will be shared among the funding REs right from the first disbursement."Transactions currently being carried out under the CLM-2 model are expected to shift to the direct assignment (DA) model," it said.