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RBI announces norms for co-origination of priority sector loans by banks, NBFCs
News
- RBI announced the co-origination model between banks and NBFCs.
What is co-origination of loans?
- It is a proposal for joint lending by banks and NBFCs.
- NBFC-A Non Banking Financial Company (NBFC) is a company registered under the Companies Act, 1956 of India, engaged in the business of loans and advances, acquisition of shares, stock, bonds, hire-purchase insurance business or chit-fund business.
- All scheduled commercial banks (excluding regional rural banks and small finance banks) may engage with non-banking financial companies to co-originate loans for the creation of priority sector assets.
- Priority sectors examples- agriculture loans, affordable housing, renewable energy projects, etc.
Important Facts:
- The arrangement should entail joint contribution of credit at the facility level by both lenders.
- The risks and rewards will be shared between the banks and NBFCs.
- At least 20% of the credit risk will be on the NBFC’s books and the balance will be on the bank’s book till maturity.
- For fixed rate loan, single blended interest rate will be offered (A blended rate is an interest rate charged on a loan that represents the combination of a previous rate and a new rate)
- For floating interest loan, weighted average of benchmark interest rates of both bank and NBFC will be offered
- Tripartite agreement will be signed between bank, NBFC and customer
- The bank and NBFC will open a common account to pool loan contributions for disbursal and repayments
Benefits of co-origination of loans
- Low-cost funds from banks and lower cost of operations from NBFC will be passed on to the beneficiary through weighted average rate.
