Guidelines on the Co-Lending NBFC Collaboration Model

The Reserve Bank of India has devised a Co-Lending Model (CLM) program under which banks and NBFCs work together to provide loans to priority sector borrowers on a pre-agreed basis. The RBI launched the co-origination of the loan program in September 2018, and the Co-Lending Model is an improvement on it. It intends to provide all lending institutions with more freedom. Let's learn more about the RBI's Co-Lending NBFC Collaboration Model Guidelines for Banks and NBFCs.

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What is the notification of RBI on the Co-Lending NBFC Collaboration Model between Banks & NBFCs?

On November 5, 2020, RBI passed RBI/2020-21/63, a notice FIDD.CO.Plan.BC.No.8/04.09.01/2020-21.

The major goal of this announcement is to strengthen the relationship between banks and NBFCs when it comes to lending in priority industries.

Adopting government techniques to achieve a proficient harmonization of loans in a few areas.

To help banks cope with the situation brought on by Covid-19.

To make it easier for financial institutions to give priority sector borrowers access to financing.

Priority Sector

The RBI considers the essential priority sectors of the economy to be those where timely and adequate credit may be difficult to get. The following categories are included in the Priority Sector:

Agriculture

Housing

Micro, Small and Medium Enterprises (MSMEs)

Export Credit

Education

Start-ups

Renewable Energy

Social Infrastructure

Miscellaneous

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What are the Guidelines of the Co-Lending NBFC Collaboration Model?

The following are the key goals of the Co-Lending NBFC Collaboration Model:

Improvement in Credit Flow: The Indian government has proposed to help the country's rural areas. The rural sector in India accounts for the majority of the population. As a result, the goal is to establish a steady flow of excellent credit in rural society, which will aid in its growth and development.

Maximum Reach: Through the partnership, both non-banking financial companies and banks may benefit from each other's strengths. The decreased cost of funding from banks combined with the NBFC's wider reach will make low-cost funds available to the eventual recipients.

Obtaining Money: The goal is to increase the availability of funds, particularly in rural regions, because obtaining loans from the public sector and financial institutions are sometimes difficult for those living in rural areas. As a result, banks have formed partnerships with these non-banking financial companies in order to create funding for rural areas.

Sharing risks and rewards: NBFC Collaboration between banks and NBFCs would result in improved lending strategies as well as the development of cutting-edge technology. However, it would also include the sharing of various types of risks and rewards between banks and NBFCs, easing the pressure on them in the long run.

To strengthen the relationship: The partnership would strengthen the relationship between banks and NBFCs, which is why the government has devised the co-lending model. This system allows both banks and non-banking financial companies to achieve their objectives in a coordinated manner. The government has implemented a number of initiatives to strengthen the partnership or alliance between non-banking financial companies and banks. The NBFC collaboration will result in more financing.

What are the Characteristics of the Co-Lending NBFC Collaboration Model?

The Reserve Bank of India has implemented a co-lending plan to improve and expand lending terms for both banks and non-banking financial companies. The following are the main characteristics of the co-lending model:

Systems: Banks and non-banking financial companies (NBFCs) must ensure that effective systems are in place to undertake anti-money laundering and due diligence procedures.

Clients: Non-Banking Financial Companies are responsible for dealing with and negotiating with clients.

The master agreement is the contract that the bank and the NBFC have entered into.

Warranties and Representations: All co-lending agreements must include representations and warranties that must be in accordance with the pre-negotiated terms and conditions between non-banking financial companies and banks.

Internal Audit: It's critical to follow the banks' and NBFC's internal and external audit criteria for the types of loans that will be given under the co-lending plan.

Security: In the co-lending approach, the NBFC and bank will jointly decide on the terms of security creation.

Business Continuity: The requirements of the co-lending agreement should have no impact on the usual business that banks and NBFCs do with their customers.

Approval: All information related to the co-lending model should be made available to customers and must be authorized by them. Customers can also file concerns with the Reserve Bank of India's Customer Education and Protection Cell.

Loan Recovery: The co-lending plan would include the necessary provisions for recovering debts from clients.

Promoter Groups: Under this co-lending model, banks are not allowed to participate in any other co-lending regime in which the Non-Banking Financial Company is governed directly by a promoter group.

When is nbfc registration rbi is necessary?

When a company's financial assets account for more than 50% of total assets and revenue from financial assets accounts for more than 50% of gross income, it is classified as a primary business. RBI will register a firm as an NBFC if it meets both of these conditions. To get an NBFC license, one must get NBFC registered with RBI prior to starting its operations.

Conclusion

NBFC Collaboration is a new industry term that describes NBFC License holders creating collaborations with banks or Fintech businesses in order to obtain leads and funding. Both parties may or may not share revenue, and both parties may or may not have NPA risk. The Reserve Bank of India (RBI) has created the Co-lending model plan, which involves NBFC collaboration with banks. As a result, it is critical that all conditions in this agreement be in accordance with what the parties have agreed to in order to achieve the goal of providing loans to priority sector borrowers on the basis of the prior agreement. NBFC registration with RBI, you visit our website and understand the complete process of nbfc registration RBI.