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.
