State Bank of India (SBI) has signed a master agreement with Adani Capital for co-lending to farmers for purchase of tractor and farm implements, to increase efficiency in farm operations and productivity of crops.
Adani Capital is the non-banking finance company (NBFC) arm of Adani Group.
SBI, in a statement, said with this partnership, it would be able to target farmer customers in the interior hinterland of the country looking for adoption of farm mechanisation to enhance productivity of crops.
Co-lending opportunities
India’s largest bank underscofed that it is actively looking at co-lending opportunities with multiple NBFCs for financing farm mechanisation, warehouse receipt finance, Farmer Producer Organisations (FPOs) etc., for enhancing credit flow to double the farmers’ income.
Dinesh Khara, Chairman, SBI said “This partnership shall help SBI to expand customer base as well as connect with the underserved farming segment of the country and further contribute towards the growth of India’s farm economy.
“We will continue to work with more NBFCs in order to reach out to maximum customers in far flung areas and provide last mile banking services.”
Gaurav Gupta, MD & CEO, Adani Capital said, “Through this partnership our aim is to contribute to farm mechanisation and play a role in improving productivity and income of the farm segment.”
The co-lending agreement will ensure that the farmer, agri and allied community get finance at affordable rates in a simple, transparent and speedy manner. The loan will be disbursed at a blended interest rate, as per the RBI directive on co-lending of loans, the company said in a statement.
Agriwise to enlarge portfolio
Kalpesh Ojha, Chief Financial Officer, Agriwise, said, “It is a matter of great pride and prestige to partner with Central Bank of India in our journey towards sustainable financial solutions in rural India. We are committed to enlarging our portfolio to under-served and un-served rural customer segments and increasing our offerings to our current customers. We wish to leverage partnerships that bring together our strength of reach and customer insights with the banks lower cost of funds. In parallel, our strong technology backbone is helping us capture unique customer insights to deliver our product and solutions in a seamless, transparent and fair manner.”
Rajeev Puri, Executive Director, Central Bank of India, said, “We are focussed on lending to the agriculture sector as priority sector lending is a key goal to empower our farmer community. With this tie-up, we wish to reach a larger and deeper set of customers in the rural and agri-sector. Agriwise, with its specialised knowledge and experience in dealing with agri and allied sectors, will enable us to serve a broader set of customers.”
Sundaram Finance that built a lending business by financing truck purchases is preparing for the next phase of growth by funding more asset classes amid a possible boom in rural incomes and the government’s infrastructure projects, its chief executive said.
While its traditional way of doing business like physical interaction and verification of customers’ credit worthiness is unconventional, it would leverage digital, technology and data without compromising on its ethos of safety and customer orientation.
The company, which has been diversifying into funding of passenger cars, construction and farm equipment in the past few years, would look at co-lending to build newer asset classes, said Rajiv Lochan, a former McKinsey consultant who is now the managing director of the Chennai-based lender.
“The opportunities for growth and prosperity for the next five to 10 years are unprecedented,” said Lochan who succeeded TT Srinivasaraghavan who headed the company for 18 years. “What will be different is probably technology, digital, and data… Under the waterline, more enablement will happen through technology and data science, that will be different.”
Sundaram Finance, started in 1954, has been a conservative lender to truck buyers. But in the past few years it diversified into other streams of lending including funding cars as competition grew. It now looks to take advantage of technology and the prospects for the Indian economy which is set to witness a boom in rural economy and infrastructure building.
“Rural India continues to remain quite strong, and therefore bodes well for the future,” Lochan said. “On the back of normal monsoons, good procurement, good sowing, and with the downside fears not coming through, the rural segment has been quite robust.”
He said a good indication of this was the results that FMCG companies have witnessed both on volume and price fronts. Lochan, however, said the urban markets too were seeing more optimism and confidence partly driven by the progress in vaccination. He further added that the company would remain an asset lending provider, going beyond commercial vehicles into passenger cars, material handling and construction equipment.
“The infrastructure space seems to be in dramatic investment mode right now. And likewise, with the rural agri opportunity opening up on the back of unprecedented reforms in that space, which hopefully we’ll see implementation over the next few years, I think opportunities in that space will also open up.”
The government has accelerated spends in rural areas through schemes for housing, direct transfer of subsidies. It also recently announced the Gati Shakti programme which would absorb the National Infrastructure Projects worth ₹110 lakh crore.
Under RBI’s model, banks can co-lend with all registered NBFCs, including housing finance companies.
The co-lending model has been around in the BFSI sector for some time now, but after the Reserve Bank of India issued guidelines in November 2020, co-lending has become a response to ease the liquidity crisis in non-bank lenders. The method aims to enhance credit flow to productive sectors, and banks and non-banking financial companies (NBFCs) have been increasingly exploring co-lending opportunities.
What is RBI‘s Co-Lending Model, and how will it work?
RBI’s CLM is one wherein two lender firms, in this case a bank and an NBFC, come together to disburse loans. Under RBI’s model, banks can co-lend with all registered NBFCs, including housing finance companies.
As per the guidelines, NBFCs and HFCs facilitate the origination and collection of housing loans while banks leverage their balance sheet strength to house the majority of the loan. This means that 80% of the loan will reflect in the bank’s balance sheet, while 20% in that of NBFCs or HFCs.
In simple terms, banks will lend to NBFCs, and NBFCs will pass it on to the priority sectors, since they have a greater reach.
NBFCs will be the single point of interface for the customers and enter into a loan agreement with the borrowers. The agreement should contain the features of the arrangement and the roles and responsibilities of NBFCs and banks.
The ultimate borrower would be charged an all-inclusive interest rate.
Considering the lower cost of funds from banks and greater reach of NBFCs, the primary focus is to improve credit flow to the unserved and underserved sectors of the economy, also known as priority sectors, and make funds available to the ultimate beneficiary at an affordable cost.
The agreement should contain the features of the arrangement and the roles and responsibilities of NBFCs and banks.
RBI has prescribed that a portion of bank lending should be used for developmental activities, for the priority sector, which includes agriculture, MSMEs, housing, and so on.
According to norms, both public and private sector banks have to lend 40% of their net bank credit (NBC) to the priority sector and foreign banks have to lend 32% of their NBC.
How is co-lending beneficial for lenders and borrowers?
The partnership allows banks to lend more funds to sectors and regions they do not have reach in. With the greater reach of NBFCs, the model allows banks to meet their total priority sector lending (PSL), while NBFCs get bigger and top rated borrowers on its books.
It also allows NBFCs to source clients, perform credit appraisals and disburse a small part of the loan amount, and enables banks to expand their lending business.
The end borrower gets accessibility to loans at very affordable and competitive rates, and is in turn included in the country’s financial ecosystem.
Indel Money has tied up with IndusInd Bank for a gold loan co-lending partnership to offer gold loans at competitive rates.
“Under the co-lending partnership agreement, Indel Money will originate and process gold loans based on mutually formulated credit parameters and eligibility criteria. The company will service customers through the entire lifecycle of the loans, including sourcing, documentation, collection and loan servicing,” it said in a statement.
IndusInd Bank will take into its book 80 per cent of the gold loans generated by the co-lending arrangement, while the remaining 20 per cent will be funded by Indel Money.
“The co-lending partnership places greater responsibility on us to excel in managing the gold loan lifecycle and underscores the trust and value that the bank has on our expertise and technology capability to meet unsolved credit needs of the underserved segments of borrowers. The partnership will help us serve an extensive range of customers across geographies and ticket-size,” said Umesh Mohanan, Executive Director and CEO, Indel Money.
The partnership will start on a pilot basis before expanding across the country.
Srinivas Bonam, Head of Inclusive Banking Group, Induslnd Bank said, “We are pleased to partner with Indel Money for extending gold loans. They have strong presence in the southern region with plans to expand across India.”
State Bank of India (SBI) has signed a Master Agreement with Vedika Credit Capital Ltd (VCCL), Save Microfinance Pvt Ltd (SMPL) and Paisalo Digital Ltd (PDL), for co-lending to individual members of Joint Liability Groups (JLGs) to undertake agriculture and allied activities, including other income generation activities.
These partnerships will enable SBI to further increase its reach in the rural and semi-urban areas of the country, India’s largest bank said in a statement.
SBI is actively looking at co-lending opportunities with multiple NBFCs / NBFC-MFIs for financing activities such as farm mechanisation, warehouse receipt finance, Farmer Producer Organisations (FPOs), for enhancing credit flow to double the farmers’/indivduals’ income, it added.
Dinesh Khara, Chairman said: “Co-lending will be pursued as an important tool to increase the micro finance, MSME and affordable housing portfolio.
“…This will also encourage entrepreneurship among the underserved population which, in-turn, will provide a boost to the Indian economy.”
Khara observed that SBI will continue to work with more NBFCs / NBFC MFIs, in order to reach out to the maximum number of customers staying at far flung areas and provide last mile banking services.
IIFL Home Finance expects to grow their loan books by 25 per cent with this association. The loan sourcing and servicing will be managed by IIFL Home Finance and 80 per cent of the loan will be provided by PNB.
IIFL Home Finance will service customers through the entire loan cycle — from sourcing, documentation and collection to loan servicing.
This is the fourth agreement signed by IIFL Home Finance with banks. Earlier this year, it signed agreements with ICICI Bank, Central Bank of India and Standard Chartered Bank.
IIFL Home Finance has disbursed loans totalling Rs 170 crore under these arrangements so far.
Punjab & Sind Bank (PSB), a public sector bank, has entered into a strategic co-lending alliance with Indiabulls Commercial Credit and Indiabulls Housing Finance (IHFL) for MSME and Priority Sector Housing Loans respectively.
Commenting on the partnership, S Krishnan, MD & CEO of PSB said that the co-lending model will improve the flow of credit to the unserved and underserved sector of the economy and make available funds to the ultimate beneficiary at an affordable cost, considering the lower cost of funds from banks and greater reach of the NBFCs/ HFLs.
He also said that the co-lending model would help the bank enhance its Retail and MSME portfolio and boost lending to MSME sector, which will aid the growth of the economy and employment generation.
Kollegal V Raghvendra, Executive Director said that the model is one of the innovative avenues of lending to the priority sector. The partnership would make available cheaper loans to the borrowers as compared to standalone loans given by NBFCs.
Is the co-lending partnership between Housing Development Finance Corporation Ltd (HDFC) and Indiabulls Housing Finance Ltd (IBHFL) a prelude to something bigger?
Currently, the Reserve Bank of India (RBI) only has guidelines for co-lending by banks and non-banking finance companies (NBFCs) for lending to the priority sector.
There are no specific RBI guidelines governing co-lending by two NBFCs (including housing finance companies/ HFCs).
So, the co-lending partnership between HDFC, India’s largest standalone HFC, and IBHFL, whose loan book shrunk in the second and third quarters of FY21, comes as a surprise.
In terms of RBI’s “Co-Lending Model”(CLM), banks are permitted to co-lend with all registered NBFCs (including HFCs) based on a prior agreement.
Under this model, NBFCs are required to retain a minimum of 20 per cent share of the individual loans originated by them on their books, with the partner banks taking their share on a back-to-back basis in their books.
As per RBI guidelines, CLM is aimed at improving the flow of credit to the unserved and underserved sector of the economy and make available funds to the ultimate beneficiary at an affordable cost, considering the lower cost of funds from banks and greater reach of the NBFCs.
HDFC, in a statement, said the objective of the co-lending program is to increase its distribution bandwidth, which will lead to additional retail housing loan business.
Under the co-lending programme, IBHFL will originate and process retail home loans as per jointly formulated credit parameters and eligibility criteria. The Corporation will have 80 per cent of the total loan in its books. IBHFL will service the loan account throughout the life cycle of the loan
So, once the co-lending partnership matures, what could be the next logical step? Is this partnership a smoke signal on a possible amalgamation down the line? Only time will tell.
State-owned Bank of Maharashtra on Monday said it has entered into a co-lending agreement with the Pune-based non-banking financial company LoanTap Credit Products, for MSME loans. Under the co-lending model, the bank will have an exposure of up to 80 per cent while the rest will be borne by the LoanTap, the bank said in a release.
“Co-lending is the system introduced by RBI in the wake of the liquidity crisis at non-banking finance companies to enhance the credit flow to the unserved and underserved sector and make available funds to the ultimate beneficiary at an affordable cost,” the bank’s managing director and CEO A S Rajeev said.
In September 2018, RBI had come out with a co-origination model between banks and NBFCs for providing credit to the priority sector. Last year in November, RBI rechristened the scheme as Co-Lending Model (CLM), and revised the terms to provide greater operational flexibility to the lending institutions.
BoM’s executive director Hemant Tamta said the co-lending model shall help the bank to meet the priority sector lending target. It will be beneficial for all NBFCs having wider outreach and customers, who will be facilitated with low cost credit from banks.
The co-lending model provides ease of loan sanctions at borrower’s convenience through digital lending platforms, which cover end-to-end loan processing cycle without manual intervention, from on-boarding of customers to loan disbursement and monitoring.
