More non-banking financial companies (NBFC) are likely to enter into co-lending partnerships with peers at a time when the gap between larger lenders and their smaller peers has grown wider.
“Co-lending volumes should increase in the days ahead. The model is a win-win for both entities — the originator or smaller entity and the primary funder or larger entity. For the smaller entities, it is a capital-efficient or a funding-light model of growth. On the other hand, it helps the larger entities lower their turnaround time and operating expenses for reaching out to newer geographies,” Krishnan Sitaraman, senior director & deputy chief ratings officer, Crisil Ratings, said.
“We are seeing co-lending gaining traction across asset classes on the retail side.
These include segments like home loans, two-wheeler loans, commercial vehicle loans, microfinance loans, gold loans and MSME loans. We are seeing bank-NBFC co-lending arrangements as well as NBFC-NBFC co-lending tie-ups,” he added.
Recently, gold loan company Muthoot Finance
Such partnerships will enable larger entities to lend to customers in wider geographies and give smaller entities access to funds at a lower cost, say experts. “Non-bank lenders can be categorised into the various segments. Those promoted by large business houses with large origination capacity; those promoted by large business houses and with moderate origination capacity; those promoted by large business houses having origination capacity but with room and appetite for further growth; those promoted by large business houses that have limited capital and limited capacity to leverage the capital, but good quality asset origination capacity,” Kishore Lodha, chief financial officer, U GRO Capital, said.
“This makes the case for an NBFC-to-NBFC co-lending pact. The large AA+ and AAA rated NBFCs have significant rate advantage over smaller NBFCs, and they can use the rate arbitrage to co-originate with smaller NBFCs that have the capacity to originate good quality assets. It helps the larger NBFCs to have good quality assets in their books without having any opex and the smaller NBFCs to utilise their capacity and earn their spread. It is creating a win-win situation for both sets of NBFCs,” he added.
In 2018, the Reserve Bank of India
While extant guidelines specify bank-NBFC partnerships, there is nothing preventing two NBFCs from collaborating, say bankers. In such a partnership, the majority of credit risk will be borne by the larger NBFC.
“As far as I understand, there is no regulatory embargo on NBFC-NBFC co-lending pacts. Between banks and NBFCs, there are constraints on accounting, an escrow account has to be maintained. Between two NBFCs, at least an accounting issue will not prop up because all NBFCs are supposed to be Ind AS driven, whereas banks are yet to migrate,” Pankaj Sharma, CEO, Religare Finvest, said.
“There has to be a concept of complementarity in this (NBFC-NBFC co-lending partnerships). There has to be a situation where there is a win-win for both NBFCs and customers also. If the borrower is able to get a competitive rate, all parties gain. The scenarios have to be thought out and only then, can the partnership work. If it competing, it cannot work because co-lending is not a concept of competition, it is one of collaboration.”