Is the co-lending partnership between Housing Development Finance Corporation Ltd (HDFC) and Indiabulls Housing Finance Ltd (IBHFL) a prelude to something bigger?
Currently, the Reserve Bank of India (RBI) only has guidelines for co-lending by banks and non-banking finance companies (NBFCs) for lending to the priority sector.
There are no specific RBI guidelines governing co-lending by two NBFCs (including housing finance companies/ HFCs).
So, the co-lending partnership between HDFC, India’s largest standalone HFC, and IBHFL, whose loan book shrunk in the second and third quarters of FY21, comes as a surprise.
In terms of RBI’s “Co-Lending Model”(CLM), banks are permitted to co-lend with all registered NBFCs (including HFCs) based on a prior agreement.
Under this model, NBFCs are required to retain a minimum of 20 per cent share of the individual loans originated by them on their books, with the partner banks taking their share on a back-to-back basis in their books.
As per RBI guidelines, CLM is aimed at improving the flow of credit to the unserved and underserved sector 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 the NBFCs.
HDFC, in a statement, said the objective of the co-lending program is to increase its distribution bandwidth, which will lead to additional retail housing loan business.
Under the co-lending programme, IBHFL will originate and process retail home loans as per jointly formulated credit parameters and eligibility criteria. The Corporation will have 80 per cent of the total loan in its books. IBHFL will service the loan account throughout the life cycle of the loan
So, once the co-lending partnership matures, what could be the next logical step? Is this partnership a smoke signal on a possible amalgamation down the line? Only time will tell.