Bank-NBFC co-lending future of money biz

Mumbai: Reserve Bank of India's (RBI) decision to allow banks and NBFCs (including HFCs) to co-lend has created ripples within the Indian fintech sector. The move allows banks and NBFCs to leverage from respective strengths and offer better lending options to the masses.

Termed as the 'Co-Lending Model' (CLM), this has emerged as one of the biggest trends to watch for observes Rachit Chawla who is a SEBI registered Investment Advisor and an expert in finance sector running successfully his RBI registered NBFC Finway FSC since a long time. We have seen many such instances recently to justify this claim when big corporations have associated with public sector banks. In December 2021, State Bank of India (SBI) joined hands with Adani Capital Private Ltd (Adani Capital) to offer loans at an affordable cost to farmers to purchase tractors and other resources. The largest public-sector bank in India has already expressed interest in exploring co-lending opportunities with different NBFCs.

Experts believe that bank-NBFC co-lending would eventually benefit all parties, including the borrower. In the Co-Lending Model, partner banks and NBFCs are expected to make joint decisions regarding loan approval, depending on their respective stakes and interests. It is expected that banks would bear a higher stake in these loans but are likely to gain from the experience and reach of NBFCs.

"Banks in India are not as tech-savvy as the new age fintech NBFCs, which undoubtedly have a better reach, especially when it comes to small-scale lending. While banks have the capital and bandwidth to lend more, new age fintech NBFCs have the expertise and know-how of the local markets to bring these loan offers to the masses," says Rachit Chawla. NBFCs, on the other hand, will gain from the capital and market control of the banks. NBFCs perform better as loan originators and offer better customer service, which could benefit banks that often have more disgruntled customers.

There is no denying that NBFCs in India still have a long way to go. However, NBFCs are already catering to a market segment that doesn't traditionally interest big financial institutions. For NBFCs, the co-lending model could mean taking their services to a wider audience and gaining from banks' brand appeal. In short, a win-win situation for everyone involved. In fact, almost 20 per cent of the pandemic lending has happened through co-lending, which should be a big indicator as far as lending trends are concerned, he added.

Bank-NBFC co-lending is expected to peak further in India with further tech advancements. While there have been initial challenges in these collaborations, Chawla believes that the market will rise. Banks can rely on these NBFCs for outreach, and the latter can rely on the bigger banks for minimising expansion and funding challenges.