Mumbai: The central bank is set to allow high-street lenders and non-banking finance companies (NBFCs) to jointly originate priority sector loans, allowing them to take advantage of each others strengths and push credit to this sector.The co-origination arrangement should entail joint contribution of credit by both lenders at the facility level, RBI said in its statement on developmental and regulatory policies during its third bimonthly monetary policy.
It should also involve sharing of risks and rewards between banks and NBFCs for ensuring appropriate alignment of respective business objectives, as per their mutual agreement.
Final guidelines on this arrangement will be issued by September-end.
Priority sector is defined by loans to agriculture, micro and small enterprises (MSME), housing, education loans and loans to weaker sections of society.
Banks have to compulsorily lend 40% of their net bank credit to this sector.
Total priority sector loans stood at 24.97 trillion, up 6.3% year-on-year, according to the latest RBI statistics.So far, banks that could not meet this target used to buy securities from NBFCs.
RBI, which has always wanted banks to directly give loans to this sector, is now promoting an alternative way of lending.Banks and NBFCs used to work together but perhaps the RBI wants to set a proper process.
This is a new model, said Umesh Revankar, CEO, Shriram Transport.
Questions on who will run the book and how will the risk be divided will be answered only when the guidelines come out.Bankers said the new model could work better because it will reduce the risk for banks and bring down the cost of funds for NBFCs.Banks and NBFCs could share the percentage of loans they originate, said PK Gupta, MD, SBI.For banks, it means a wider network, which is very helpful in recovery of such smallticket loans.
For NBFCs, it could mean access to lower cost of funds.