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Challenges persist for co-lending model in Indian banking sector
November 07, 2023
In India, the co-lending model, introduced in 2018 to boost credit flow to underserved sectors, is facing challenges despite numerous bank-NBFC partnerships. The model, based on an 80:20 partnership between banks and non-banking financial companies (NBFCs), aims to mitigate risks and promote long-term reforms.
One major issue is the lack of comprehensive data and evaluation tools, leaving stakeholders in the dark about the model’s effectiveness. Regulators and industry bodies have yet to assess its impact, hindering a clear understanding of co-lending arrangements’ real-world performance.
Banks like Canara Bank are cautious in their co-lending engagements, opting for secured credit and implementing stress-trigger thresholds. The Reserve Bank of India (RBI) has added complexity with specific requirements, demanding NBFCs to confirm that their contribution to the loan isn’t funded by borrowing from the originating bank or its group companies. This requirement necessitates careful balance in partnerships, making co-lending arrangements more intricate.
Despite these challenges, the co-lending model remains vital in expanding credit access to sectors in need. However, addressing the existing issues, enhancing transparency, and promoting a collaborative approach between banks and NBFCs are essential steps for ensuring the model’s success and achieving its intended goals in India’s financial landscape.
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