RBI broadens co-origination model for priority sector lending, all NBFCs can collaborate with banks

The Reserve Bank of India on Friday broadened the 'co-origination model' following which all non-bank lenders including housing finance companies will be allowed to collaborate with banks to undertake priority sector lending.

Governor Shaktikanta Das said the newly christened "co-lending model" will improve the flow of credit to the unserved and underserved sector of the economy.

In 2018, the RBI had put in place a framework on co-origination of loans by banks and only a certain category of Non-Banking Financial Companies (NBFCs) were allowed to partner with banks for lending to the priority sector subject to certain conditions.

This arrangement entailed joint contribution of credit at the facility level, by both the NBFCs and banks and also sharing of risks and rewards between them for ensuring appropriate alignment of respective business objectives, Das said.

"... it has been decided to extend the scheme to all the NBFCs (including HFCs), to make all priority sector loans eligible for the scheme and give greater operational flexibility to the lending institutions," Das said.

The decision to broaden the scheme has been taken "to better leverage the respective comparative advantages of the banks and NBFCs in a collaborative effort, and to improve the flow of credit to the unserved and underserved sector of the economy" after feedback from stakeholders, he said.

Das added that all the housing finance companies will also be able to partner with banks.

Regulatory guidelines on outsourcing, know your customer (KYC) will have to be adhered to by lending institutions under the new framework as well, Das said.

The revised guidelines for the "co-lending model" will be issued by end of the month, he said.

It can be noted that the RBI has a system of PSL in order to uplift certain disadvantaged sectors of the society and mandates banks to allocate over 40 per cent of their annual lending to these sectors with sub-sector limits.