RBI’s Co-lending model
Part of: Prelims and GS-III – Economy
Context Several banks have entered into co-lending ‘master agreements’ with NBFCs following November 2020’s RBI approval of co-lending model.
About Co-lending model (CLM)
- The CLM seeks to provide greater flexibility to the lending institutions.
- The primary focus is to improve the flow of credit to the unserved and underserved sector of the economy.
- Under CLM, banks can provide loans along with NBFCs to priority sector borrowers based on a prior agreement.
- Under priority sector norms, banks are mandated to lend a particular portion of their funds to specified sectors, like agriculture, MSME and social infrastructure.
- The co-lending banks will take their share of the individual loans on a back-to-back basis in their books.
- As per a notification by RBI, NBFCs will be the single point of interface for the customers and shall enter into a loan agreement with the borrowers.
- All transactions have to be routed through an escrow account maintained with the banks, in order to avoid inter-mingling of funds.
- Suitable arrangements must be put in place by the co-lenders to resolve any complaint registered by a borrower with the NBFC within 30 days.