Banks, NBFCs can do Co-lending to Priority Sector : Daily Current Affairs

Banks, NBFCs can do Co-lending to Priority Sector

Reserve Bank of India (RBI) has eased norms to allow co- origination of priority sector loans by banks and non-banking finance companies (NBFCs).

The co-lending model is aimed at improving the flow of credit to the unserved and underserved sector of the economy and making available funds to the ultimate beneficiary at an affordable cost, considering the lower cost of funds from banks and greater reach of the NBFCs.
Under RBI norms banks have to compulsorily lend 40% of their net bank credit for sectors like agriculture, micro and small industries, weaker sections of society and new areas like renewable energy.
Banks will take their share of the individual loans on a back-to-back basis.
NBFCs have to retain a minimum of 20% share of the individual loans on their books, RBI said.
The NBFC shall be the single point of interface for the customers and shall enter into a loan agreement with the borrower, which shall clearly contain the features of the arrangement and the roles and responsibilities of NBFCs and banks.

The co-lending banks and NBFCs shall maintain each individual borrower’s account for their respective exposures. However, all transactions (disbursements/ repayments) between the banks and NBFCs relating to CLM shall be routed through an escrow account maintained with the banks, in order to avoid inter- mingling of funds

A Non-Banking Financial Company (NBFC) is a company registered under the Companies Act, 1956 engaged in the business of loans and advances, acquisition of shares/stocks/bonds/debentures/securities issued by Government or local authority or other marketable securities of a like nature, leasing, hire- purchase, insurance business, chit business but does not include any institution whose principal business is that of agriculture activity, industrial activity, purchase or sale of any goods (other than securities) or providing any services and sale/purchase/construction of immovable property.

Public funds are not the same as public deposits. Public funds include public deposits, inter-corporate deposits, bank finance and all funds received whether directly or indirectly from outside sources such as funds raised by issue of Commercial Papers, debentures etc.