RBI’s Co-lending model

  • IASbaba
  • December 15, 2021
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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.

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