In a first of its kind, India’s second largest vehicle finance company Mahindra & Mahindra Financial Services is set to explore the co-lending model. While the model is popular in the housing finance segment, M&M Finance’s move would mark the entry of vehicle financiers in the co-lending segment.

“We are in dialogues for co-lending (agreements) and very soon we will get into it,” said Ramesh Iyer, in an exclusive interview with businessline. The lender is said to be in talks with some of the public sector banks to explore the co-lending model. “I think in Q4 we should see the beginning of this,” Iyer affirmed. With the cycle turning favourable for vehicle financiers, Iyer pointed out that the reason for exploring the co-lending route is to gain from the complementary strengths of the competition.

Popular option

PSU banks have been on the forefront partnering with NBFCs on the co-lending model which came into play in 2020. While the model had a slow start owing to the pandemic, it gathered momentum by mid-2021 and has turned out to be an extremely popular option in the housing finance sector. Iyer is confident that it’s a win-win even for vehicle financiers “because every segment cannot be my segment and every geography may not be your (banks’) geography,” he added. Also, such a model would help NBFCs cater to customers looking for longer tenure loans and offer loans at competitive rate.

“They (PSU banks) have money power but they may not physically reach out to customers in that geography,” said Iyer while explaining why the idea of working on a 80:20 model appeals to him. In co-lending agreements, banks take 80 per cent of the customer risk and rewards on their books, while NBFCs account for 20 per cent. “I will still own that customer for future”.