RBI announced co-lending scheme for banks, NBFCs for priority sector.

The Reserve Bank of India on announced a Co-Lending Model (CLM) scheme on November 5, 2020. Under the Co-Lending Model, banks and Non Banking Financial Company (NBFC) can provide loans to the priority sector borrowers based on a prior agreement.

Co-Lending Model (CLM)

The CLM is an improvement over the co-origination of loan scheme that was announced by the RBI in September 2018. CLM seeks to provide greater flexibility to the lending institutions. Under the CLM norms, banks will have the permission to co-lend with all registered NBFCs based on a prior agreement. The co-lending banks will take their share of the individual loans on a back-to-back basis.  But, the NBFCs will be  required to retain a minimum of 20% share of the individual loans.

Aim

The primary focus of the scheme is to improve the flow of credit to the unserved and underserved sector of the economy. It also seeks to make available funds to the ultimate beneficiary at an affordable cost.

Co-origination of loan scheme

Co-Origination means a form of loan participation where two or more lenders lend money to a borrower. The Reserve bank of India had announced the scheme in September 2018. Under this scheme, all scheduled commercial banks, excluding the regional rural banks and small finance banks, can engage with the non-banking financial companies in order to co-originate loans to create priority sector assets. In order to do this, banks and NBFC required to open a common account to pull the respective loans contributions. The main purpose of the scheme is to use ground-level reach of NBFCs in helping the scheduled banks to reach priority sector lending targets.