CredAvenue Co-Lending

What is
Co-Lending?

The term-Co-lending refers to the coming together of two lending firms to disburse loans. It is a set-up where the banking and non-banking sector join hands in an arrangement for the joint contribution of credit for priority sector lending. This alliance authorizes firms to source clients, conduct credit appraisals & disburse a small part of the loan amount. According to this arrangement, both banks and NBFCs share risk in a ratio of 80:20; 80 percent loan with the bank and a minimum of 20 percent with non-banks.

Although the concept of Co-Lending has existed over the years, it has led to more banks and NBFCs coming together to make funds available to the priority sector after the Reserve Bank of India (RBI) laid out the framework for co-origination of loans. SBFC (Small Business Finance), an NBFC lending to small businesses, was one of the first NBFCs to co-lend with ICICI Bank in 2019. Recently, more banks and NBFCs have embarked on increasing the Co-Lending tie-ups. Now that co-lending meaning is clear, let’s look at some of its benefits.

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Benefits of
Co-Lending

A Co-Lending model helps traditional banks to give out higher amounts of funds using the fintech working model for a greater digital reach. While banks have the funds, NBFCs have the reach. A Co-Lending model thus proves to be symbiotic for both. This model is effective as it uses robust technology to simplify the operational challenges faced by traditional lending models. There are several benefits of a Co-Lending model, such as:

Improvement in quality and turnaround time

The digitization of financial institutions has led to improved quality of services. Robust technology has improved turnaround time for all the processes, from application to disbursal and delivering the services in real-time.

Quick Loan Disbursal

Today, loans are available on easy-to-use, customer-friendly smartphone apps with just a click. It benefits the consumers, as the best of both worlds, digital channels, and physical branches are available under a Co-Lending model.

Lower Interest Rates

Through the Co-Lending model, a variety of products can be served at lower interest rates to the priority customers. Thanks to the digital lenders, the cost of acquiring customers has reduced substantially, which, coupled with the low cost of capital banks bring, reduces the overall cost. The cost-advantage can be passed on to the borrowers.

Large Customer base

Fin-Techs utilize digital platforms to enhance their reach to potential customers, which helps cater to the needs of borrowers across geographical boundaries. Further, a Co-Lending model also helps fuel the economically weaker strata with the funds they require.

Automated & Paperless Processes

The entire process is automated, facilitating the borrowers to access funds from the comfort of their homes – right from application to disbursal. Further, new-age lenders have adopted e-KYC, and Video KYC has simplified the process even more.

How does Co-Lending work?

The RBI had earlier laid out the co-origination framework in 2018, allowing banks and NBFCs to co-originate loans. But, in 2020, RBI Co-Lending guidelines were further amended and renamed as CLM- Co-Lending Models. It included Housing Finance Companies, and some modifications were made in its framework.

CLM aims to improve the credit flow to the unserved and underserved segments of the economy at an affordable cost. The model works on the principle that banks have lower costs of funds, and NBFCs have greater reach beyond tier-2 centers.

As per RBI norms, a minimum of 20% of the credit risk through direct exposure shall be on NBFCs books until maturity, and the balance of 80% will be on the bank’s books. The bank and NBFC share the repayment & recovery of interest in proportion to their shares in credit and interest, respectively, upon maturity.

To simply put how Co-Lending works:

✓ Banks lend to NBFC, and since NBFCs have a greater reach, they pass it on to the priority sectors.

✓ NBFCs serve as the single point of contact for the customers, and a tripartite agreement is signed between the customers, banks, and NBFCs.

Why is the
Co-Lending platform for you?

Co-Lending platforms help connect NBFCs and banks to disburse joint loans to the borrowers, thus opening up a world of Co-Lending for you.

CredCo-Lend (by CredAvenue) is one such fully integrated platform – a 1-stop solution – providing opportunities for easy discovery and seamless loan processing between NBFCs and banks. Also, it takes care of all the compliances and splitting requirements to power the complete Co-Lending ecosystem.

This platform helps NBFCs get discovered by banks to meet loan origination requirements. It has a partnership with 500+ lenders, and thus you can associate with the bank at a price that suits you.

Further, using this platform, banks can identify the NBFCs meeting your criteria with a transparent credit rating module and 250+ potential Co-Lending partners across multiple sectors. Also, CredAvenue’s all-in-one debt platform enables you to get a term/working capital loan very seamlessly by just switching between the platforms.

Additionally, CredAvenue provides benefits such as:

✓ Seamless Integration
✓ Alignment of Originators & Lenders Credit
✓ End-to-end Operation
✓ A complete portfolio management & monitoring solution

FAQs

How does the Co-Lending model help the lender?

“Co-Lending Model” (CLM) helps improve the credit flow to both the unserved & the underserved sector comprising the economy and makes funds available at an affordable cost. This model combines the benefits of the lower cost of funds from banks and the extensive reach of the NBFCs.

How does the Co-Lending model work?

According to the CLM model, banks are granted permission to co-lend in collaboration with all registered NBFCs (which includes the HFCs) on the basis of a prior agreement. The Co-Lending banks, in turn, will take their share of the individual loans back-to-back; however, NBFCs shall have to retain a minimum of 20% share of the individual loans on their books.

How does the Co-Lending model help the borrower?

“Co-Lending Model” (CLM) helps the borrower get loans at a very affordable and competitive rate.

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