CredAvenue Co-Origination
Learn how CredCo-Lend helps with your co-origination needs
What is Co-Origination?
Co-Origination of loans or Co-Lending is a model based on joint lending. Under this arrangement, both banks and NBFCs become Co-Lenders to the same borrower and share the lending risk in pre-determined proportions. The main motive of this model is to provide more funds to the priority sectors.
The minimum proportion to be borne by the NBFCs is set at 20%. So, the banks can share a maximum credit exposure of 80% on these loans. The RBI made a clear framework for Co-Origination of loans by Banks and NBFCs in 2018. This framework was modified in 2020 to include Housing Finance Companies as well.
Benefits of Co-Origination of Loan
The concept of Co-Origination has been created to form a win-win situation for all the parties involved. Hence, the benefits of this arrangement are not limited only to the customers but also extend to the banks and NBFCs. So, here are the major benefits that make the Co-Origination of loans so attractive.
Benefits for Customers
✓ Due to the division of credit risk between the banks and the NBFCs, the customers have greater chances to get the loans approved.
✓ Companies dealing in indigenous products are being given priority for coordinating loans under the Atmanirbhar Bharat Abhiyan.
✓ With the help of the Fintech lending platforms, it has become easier to bring banks and NBFCs on the same page and provide an accessible platform for the borrowers to get credit.
Benefits for Banks
✓ Since the banks and NBFCs jointly advance the loan amount, the burden of credit risk and the corresponding reward are shared between them.
✓ Usually, the banks have to lend a minimum amount to the priority sectors every year. NBFCs avoid giving standalone loans to the priority sector. Co-Origination allows them to make such loans to more loan applicants.
✓ Recovery of loans is a significant issue for lenders, especially banks. In the case of the Co-Origination of loans, banks can benefit from the robust recovery infrastructure available with the NBFCs.
Benefits for NBFCs
✓ NBFCs are smaller entities as compared to banks. By getting into co-originate arrangements, NBFCs can focus more on customer support and service and tap into banks’ broad customer base.
✓ NBFCs can also learn the lending framework of the banks and what checks they make to choose the best lending proposals.
Benefits for the Economy
✓ Co-originate loans are given to the largely neglected priority sector. This increases their working capital and thus opens ways for them to earn more profits.
✓ The SMEs that get the loan need more workforce to complete the work. Hence, ample employment opportunities are created for job seekers.
How Does
Co-Origination
of Loans Work?
Co-Origination
of Loans Work?
Having learned about the basics of co-originated loans, it is important to know how these loans are sanctioned and operated. According to the Co-Origination agreement, the banks and NBFCs hold their ownership of their proportion of the loan in the books of accounts. Let’s divide the process into the following two categories and understand how the process works.
Credit Exposure
Suppose the total lending amount is Rs. 1 Crore. Assuming that the NBFC holds 30% exposure in this loan, the amount to be held in the books of NBFC will be Rs. 30 Lakhs. At the same time, the bank will record Rs. 70 Lakhs as its credit exposure.
Revenue Sharing
Suppose the total lending amount is Rs. 1 Crore. Assuming that the NBFC holds 30% exposure in this loan, the amount to be held in the books of NBFC will be Rs. 30 Lakhs. At the same time, the bank will record Rs. 70 Lakhs as its credit exposure.
Why is
Co-Origination
for You?
Co-Origination
for You?
Having learned about the Co-Origination loan schemes, the question now arises: Why should you opt for a co-originate loan? If you need a loan for business purposes, here are the key reasons for applying for a co-originate credit:
Higher Sanction Rates
The number and amount of loans sanctioned to the SME businesses under the co-originate arrangement are higher than standalone bank credit. Hence, there is a higher chance for you to bag a loan.
Easier Terms & Conditions
The loan terms are less stringent since the co-originate loans are made to the priority sectors
The benefit of Fintech Platforms
Usually, it is a long and tedious process to get your loan request approved. But with the help of fintech platforms, such as CredAvenue, that host various banks and NBFCs on the same platform, you can easily apply for your loan and get it sanctioned. Hence, applying for a co-originate loan through such fintech platforms will make the entire process seamless.
FAQs
What is an NBFC, and how is it different from a bank?
NBFCs are financial institutions that primarily receive deposits and lend money to borrowers. Although their functioning is similar to a bank, there are a few differences:
✓ NBFCs are not allowed to accept deposits repayable on demand.
✓ NBFCs are not a part of the financial system and hence, cannot facilitate the execution of a transaction. Hence, they cannot issue and honor cheques in their name.
✓ The DICGC doesn’t cover any deposit made with an NBFC.
What is the Priority Sector?
The sectors that require a boost to make basic development in a country are called the priority sectors. The Government of India and RBI decide the list of priority sectors of the country. Currently, the priority sector in India comprises agriculture, MSMEs, education, housing, social infrastructure, renewable energy, etc.
What are the benefits of a Fintech Lender?
Fintech companies provide platforms that aid a faster lending process between the borrowers and the financial institutions. Banks and NBFCs also prefer such platforms as they can be sure that they can lend to genuine customers having prospects to repay the loan. This makes compliance easier.