RBI’s Co-lending model

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.