After coming down heavily on the banks-fintechs partnerships, it’s now the co-lending structures which has caught the Reserve Bank of India’s attention. The exponential growth of loans lent through this model has made the regulator uncomfortable with the arrangement.

To put things in perspective, against ₹5,000 crore of loans originated through co-lending in FY22, the recently ended fiscal saw the number jump over five-fold to ₹25,000 crore.

The biggest concern

“Some of these co-lending arrangements are being entered into by mid- and small-sized banks with non-banks which don’t have a long history or a proven track record. In such cases, the regulator is worried whether adequate checks and balances are in place to ensure that there are no lapses in underwriting,” said a senior executive of a private bank.

However, it seems that the larger banks are cautious about such arrangements.

For instance, KVS Manian, whole time director, Kotak Mahindra Bank, in an interview to businessline, said the model hasn’t evolved much yet for the bank to get comfortable with it.

The regulator is also perplexed that when some segments such as the market for home loans have seen a slowdown in demand, loans lent through co-lending agreements have grown at a mind-boggling pace.

Low-ticket loans

“We need to see whether some of the erstwhile loopholes with the securitisation model are being exploited by lenders in the co-lending model,” said another highly placed source aware of the issue.

Hence, at banks and NBFCs where such partnerships witnessed an above-average growth, the regulator is checking whether a customer sourced by the bank from an NBFC is an exclusive customer or if he was served by another bank prior to being onboarded by the bank.

“Especially with low-ticket loans, there are reasons to believe that there could be some sort of evergreening of loans going on in the system and the objective of increasing the supervision is to clamp down such practices,” said the source quoted above.

Post the ongoing review, regulations around co-lending arrangements are expected to be tightened.