Finance Ministry urges SBI to constitute a committee to address Co-lending issues

The Finance Ministry recently requested the State Bank of India (SBI) to form a committee to examine issues linked to the co-lending business model, according to a senior government official who did not wish to be identified.

The Reserve Bank of India recently permitted banks to co-lend or co-originate loans with non-banking finance businesses, particularly home finance companies, in order to increase credit flow to the unserved and underserved sectors of the economy. According to the regulations, non-banking finance providers can only take up to 20%.

“We found several co-lending challenges and have urged SBI to constitute a committee. This committee will include representatives from major banks as well as non-bank financial services. The committee will also examine why banks are hesitant to engage the co-lending market. This would also provide a common foundation for banks and non-banking financial organizations. Banks contribute 80% of the money, while non-banking financing companies contribute 20%. So banks have advised that we provide first loss cover, which will alleviate the banks in this space.” an official from the Finance Ministry stated.

CRISIL Ratings expects that non-banking financial organizations’ co-lending book will reach Rs.1 trillion by June 2024, with an annual growth rate of 35-40% over the medium term. During the meeting, the Finance Ministry solicited feedback from stakeholders on the upcoming budget as well as the 100-day program.