All non-banking financial companies, including housing finance companies, will now be included in the co-origination scheme as part of efforts for greater financial inclusion and give more operational flexibility to lending institutions. The move is also expected to give a boost to housing finance.

“Based on the feedback received from the stakeholders 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, it has been decided to extend the scheme to all NBFCs (including HFCs) to make all priority sector loans eligible for the scheme and give greater operational flexibility to the lending institutions, while requiring them to conform to the regulatory guidelines on outsourcing, KYC,” said the RBI’s Statement on Developmental and Regulatory Policies.

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Co-Lending Model

The proposed framework will be called ‘Co-Lending Model’ and the revised guidelines will be issued by the end of the month, the RBI further said.

The central bank had, in 2018, introduced a framework for co-origination of loans by banks and NBFCs for lending to the priority sector, subject to certain conditions. The arrangement called for a joint contribution of credit at the facility level by both the lenders and also sharing of risks and rewards between them for ensuring appropriate alignment of respective business objectives.

A number of banks and NBFCs had tied up for this, but many experts said the model did not see the expected results.

“Co-origination, which started in August 2018, had not taken shape because of the complexities in the blended rates being offered to customers. Now that HFCs are brought into it, housing is an unified segment, which is predominantly retail and, here, there is an opportunity for every player,” said Mallikarjuna Rao, Managing Director and CEO, Punjab National Bank, adding that the lender will be open to do co-origination with all HFCs, irrespective of their size.

“Now, HFCs are included in co-origination of loans with banks. While the details are yet to be seen how this work as in the last two years co-origination could not take off,” said Deo Shankar Tripathi, MD and CEO of Aadhar Housing Finance.

Ramesh Iyer, Vice Chairman and Managing Director, Mahindra Finance, and Chairman, FIDC, noted that there has been a clear recognition of NBFCs for sourcing of loans with this announcement. At a conference by IMC Chamber of Commerce, he, however, urged NBFCs that they should not become an intermediary of banks but present their strengths.

Shishir Baijal, Chairman and Managing Director, Knight Frank India, said the move will also help ease credit availability for the real estate sector.