Banks and non-banking financial companies (NBFCs) may have differences in their business models, but that has not stopped these two kinds of financial entities from coming together every once in a while to create customer-friendly solutions. In fact, in recent years, the Indian financial sector is witnessing an increasing number of partnerships where banks and NBFCs join hands to build co-lending models.
A co-lending model is an arrangement where two lenders come together to offer a loan to the borrower. This kind of model allows each lender to disburse more funds in the form of loans to borrowers. The risk is also distributed between the two lenders. Borrowers can avail different types of working capital loans, business loans, and other kinds of loans through these co-lending models.
Here are 10 things you need to know about co-lending models before you avail a loan.
- A co-lending model helps borrowers from the unserved and underserved demographics have easier access to loans and funding. This is one of the key reasons the RBI has allowed such partnerships.
- Generally, in co-lending models, banks retain around 80% of the loans on their books, and NBFCs keep the other 20%. However, this is not a rule set in stone.
- Before offering a joint loan via a co-lending model, banks and NBFCs need to have a contract in place, with details like the terms of the lending arrangement, the product details, the customer protection measures and more.
- Banks and NBFCs entering into such a partnership also need to have a business continuity plan in place, so you – the borrower – are not affected even if they decide to end the collaboration.
- Another reason co-lending models may be useful is that