Credit and Finance for MSMEs: Public sector lender Bank of Baroda on Monday announced the launch of its end-to-end digital platform for co-lending of loans in partnership with non-banking financial companies (NBFCs). The platform uses rule-based algorithms for underwriting, enables credit assessment checks, enables retail, MSME, agri co-lending product offerings and increases process efficiency, the bank said. The platform can handle both non-discretionary and discretionary models of co-lending for secured or unsecured credit as per the latest guidelines by the Reserve Bank of India (RBI) on the co-lending model. Bank of Baroda currently has co-lending tie-ups with non-banking financial companies (NBFCs) including U GRO Capital and Paisalo, and housing finance companies Edelweiss Housing, Centrum Housing Finance, etc.
“During the testing phase of the platform, we had tied up with U GRO Capital. There are around four more players in the pipeline to get onboard the platform. So far, there was no end-to-end digital platform for co-lending in India, everything was done manually or what was being reported as co-lending was actually direct assignments,” Akhil Handa, Chief Digital Officer, Bank of Baroda told Financial Express Online.
The new platform by Bank of Baroda will enable aligning demand generation, escrow management, and collection management which are the most important features of the co-lending platform, added Handa.
Bank of Baroda is looking to get 10 NBFCs on the platform and targeting a Rs 10,000-crore loan book in co-lending in two years. However, the bigger ambition, said Handa, is to reduce the end rate of interest for borrowers, which have been borrowing at 18-24 per cent. The only way to reduce it is by an end-to-end co-lending technology platform, he said. Usually, the interest rate via co-lending is around 8 per cent onwards.
Co-lending as a model appeared back in 2018 when the RBI announced the co-origination framework for loans by banks and NBFCs for priority sector lending. The framework was rechristened as co-lending in November 2020 under which the risk is shared in a ratio of 80:20 — 80 per cent loan with the bank and at least 20 per cent with NBFC.
“The digital co-lending platform will pave the way for both Bank of Baroda and our NBFC partners to seamlessly integrate and enable lending to borrowers with improved TAT. Co-lending is a priority area for the Bank and we believe that this state-of-the-art platform will help to achieve significant milestones in the coming years,” said Vikramaditya Singh Khichi, Executive Director, Bank of Baroda.
Co-lending as a model has increasingly gained acceptance among banks including State Bank of India, Union Bank of India, Central Bank of India, IndusInd Bank, Yes Bank, Punjab National Bank, and more to tap into the last-mile network of NBFCs and lend more to the people and businesses in rural areas particularly, with respect to priority sector lending programme.