The Reserve Bank of India (RBI) may liberalise small finance banks' scope of activities by permitting them to co-lend with non-banking finance companies (NBFCs), reported Business Line.
They are not permitted as of now to co-lend with another lender. Only scheduled commercial banks and NBFCs are allowed to co-lend to priority sectors like agriculture, MSMEs, education and housing, among others.
Though RBI has so far mandated that SFBs can do only direct lending, it is believed to be weighing industry requests to allow co-lending in areas where these banks don’t have an expertise.
“If an SFB wants to enter commercial vehicle (CV) funding, it makes more sense for it to tie up with a specialised CV player (NBFC) rather than doing it all by itself,” said a senior SFB official.
Industry watchers say the banking regulator seems to be open to SFBs’ co-lending demand. If these banks and NBFCs join forces, it will increase priority sector lending (PSL), which is a focus area for both the government and RBI. PSL is productive and generates income for borrowers.
“In the case of microfinance, SFBs don’t want to hold all the exposure in their books. Co-lending will help them manage risks. Probably, the RBI is waiting for all SFBs to list before liberalising this rule,” said experts.
According to the RBI, the co-lending model (CLM) is aimed at improving the flow of credit to the unserved and underserved sectors of the economy and make available funds to the ultimate beneficiary at an affordable cost, considering the lower cost of funds from banks and greater reach of NBFCs.
In terms of the CLM, banks are permitted to co-lend with all registered NBFCs (including HFCs) based on a prior agreement.