The Department of Financial Services (DFS) is in the process of setting up a committee on co-lending with State Bank of India at the helm. The objective of the committee is to address issues related to co-lending, boosting MSME credit and curbing some of the accelerated growth in consumer loans.

“Finance Ministry has created a committee of three banks and three NBFCs to look into resolving the issues of co-lending and improve volumes. RBI and DFS are working together to see what can be done to encourage co-lending because they want it to grow exponentially,” a source told businessline.

SBI, the country’s largest lender and one of the biggest players in the co-lending space, will decide who will be a part of the committee, announced around a fortnight ago. SBI has started reaching out to potential members, the source said. MSME-focused NBFC UGro Capital is expected to be one of the members of the committee. The company did not comment on the same.

The committee will discuss and present a report to the RBI and DFS on how to create a framework to boost co-lending, especially for MSMEs, identify the bottlenecks and propose the regulatory and policy changes or solutions that can be provided to aid credit access.

Boosting MSME credit

In addition to boosting MSME credit, increased co-lending is expected to help reduce NBFCs’ liquidity requirements as they pursue a more asset-light model, given that the RBI has traditionally been uncomfortable with NBFCs having large balance sheets.

It is also expected to curb some of the accelerated growth seen in co-lending for consumer loans. The regulator recently reached out to certain banks warning them to be cautious about their co-lending partnerships and the stress in portfolio quality arising due to such lending channels.

“Co-lending was designed for priority sector loans (PSLs), including MSMEs. But some banks availed dispensation for non-PSL and suddenly consumer loans now account for 65-75 per cent of total co-lending. The focus should be on PSL and it is possible that at some point the regulator may feel that other segments should be slowed down or may not be allowed to be done at all,” another source said.

A recent report by CRISIL said that co-lending AUM is expected to have touched close to ₹1-lakh crore in over five years since the model came into being. Of the co-lending book, personal loans account for 34 per cent of the AUM, followed by housing loans at 20 per cent. Unsecured MSME and gold loans comprised 13 per cent each, whereas secured MSME (including loan against property) and vehicle loans constituted the remaining 20 per cent. The agency expects co-lending to grow at 35-40 per cent in the medium term.