Mumbai: The Reserve Bank of India (RBI) has released the guidelines on co-orgination of loans by banks and non-deposit taking non-banking financial companies (NBFCs) in the priority sector, following its announcement in the August credit policy. The move is aimed at leveraging the reach of NBFCs to help banks meet their priority sector lending targets, leveraging the reach of NBFCs.
The co-origination arrangement should entail “joint contribution of credit by both lenders”, the RBI said. It should also involve “sharing of risks and rewards between banks and NBFCs”, according to the central bank.
Priority sector lending includes loans to sectors such as agriculture, micro enterprises, social infrastructure, education and renewable energy.
Under the new guidelines, NBFCs will take minimum 20% of the credit risk by way of direct exposure, with the balance being taken by banks. RBI says the NBFC will have to give an undertaking to the bank that its contribution towards the loan amount is not funded out of borrowing from the co-originating bank or any other group company of the partner bank.
Both the lenders must have the flexibility to price their part of the loan exposure depending on the risk appetite, according to the guidelines. A single blended interest rate will be offered to the borrower in case of fixed rate loans, while a weighted average of the benchmark interest rates in proportion to the respective loan contribution will be offered in the case of floating rates loans.
The bank and NBFC shall open an escrow type common account for pooling of respective loans contributions for disbursement and loan repayments from borrowers, the guidelines state.
In cases of grievance redressal, the NBFC has to explain to the borrower the difference between products offered through the co-origination model as compared to its own products. The lender will be primarily responsible for providing the customer service and grievance redressal to the borrower. In case the complaint is not resolved within 30 days, the borrower would have the option to escalate the same with banking ombudsman/ ombudsman for NBFCs, concerned.
Both the lenders will follow independent provisioning requirements and create a framework for day to day monitoring and recovery of the loan, the guidelines state.
“The new guidelines benefit both banks and NBFCs. But this benefit is denied to deposit taking NBFCs like Shriram, Sundaram. RBI wants to focus on big NBFCs with pan India presence,” said Raman Aggarwal, chairman, Finance Industry Development Council.
“Such collaborative models will be accounted differently by both banks and NBFCs. Banks will follow the old system while NBFCs will follow IndAS. So you have the same borrower, same product but two entities will be treating it differently,” he said.