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The Finance Ministry has asked the State Bank of India (SBI) to set up a committee to address issues related to the co-lending business model, said a senior government official who does not wish to be named.
The Reserve Bank of India had allowed banks to co-lend or co-originate loans with non-banking finance companies, including housing finance companies, to enhance the flow of credit to the unserved and underserved sections of the economy. Non-banking finance companies can take a maximum of 20 per cent, according to the norms.
"We've identified some co-lending issues and thus asked SBI to form a committee. This committee will include representatives from major banks and non-banking financial services," said the official.
The official further added that SBI will appoint one of its officers to look at why the co-lending space is not picking up.
“The committee will also look at why banks are hesitating to enter the co-lending space. This will also create common ground for both banks and non-banking finance companies. The 80 per cent money comes from banks and 20 per cent from non-banking finance companies. So banks have suggested to us to provide first loss cover, which will ease the banks in this space,” said the official.
On Thursday, the Department of Financial Services convened a meeting with major public sector banks like SBI, Punjab National Bank, National Bank for Agriculture and Rural Development, Small Industries Development Bank of India, Microfinance Institutions Network, non-banking financial companies, and other microfinance institutions.
"We've encouraged banks and non-banking financial companies to enhance their co-lending activities," added the government official.
CRISIL Ratings predicts that the co-lending book of non-banking financial companies will likely reach Rs 1 trillion by June 2024, with a growth rate of 35-40 per cent annually over the medium term.
During the meeting, the Finance Ministry took suggestions from the stakeholders for the upcoming budget and the 100-day agenda as well.
"We discussed various agendas during the meeting, addressing issues from technology to cybersecurity. Some suggestions have been noted for the future budget and the upcoming 100-day agenda," said a senior government official.
Regarding the Reserve Bank of India's draft project financing norms, the official said, "All stakeholders will provide their feedback, which will be consolidated and submitted to the government. The Department of Financial Services will also comment on the draft norms."
The recent draft guidelines by the banking regulator propose a phased 5 per cent standard asset provision during the construction phase, even for existing projects.
The Finance Minintry has also expressed concerns about the high lending rates of non-banking financial companies. "We've addressed the issue of high interest rates with non-banking financial companies and directed them to improve their recovery process," said the government official.
During the meeting, non-banking financial companies asked the government for the right for Unified Payments Interface access like banks. “Non-banking financial companies have also asked for the permission to issue credit cards,” said a government official.
The Finance Ministry also took a review of the gold loan status of all major public sector banks where they did not find any issue with it.
“We asked some public sector banks to check their gold loan portion and we have not found any issue in it,” said the official.
Recently, the Reserve Bank of India has asked non-banking financial companies involved in gold loan business to strictly comply with norms regarding loan-to-value ratio, auction processes, and cash disbursement after discovering that some of these companies violated regulatory guidelines.
