The Reserve Bank of India (RBI) on Wednesday issued revised regulations for co-lending between banks and non-banking financial companies (NBFCs), effective January 1. All regulated entities (REs) under a co-lending agreement will be required to retain at least 10 per cent of each individual loan on their books.
The loan-originating entity will also be permitted to provide a default loss guarantee of up to 5 per cent of the loans outstanding under the agreement.
“Each RE under a co-lending arrangement (CLA) shall be required to retain a minimum 10 per cent share of the individual loans in its books. The credit policy of an RE shall suitably incorporate provisions relating to CLAs, including the internal limit for the proportion of their lending portfolio under CLAs; target borrower segments; due diligence of the partner entities; customer service and grievance redressal mechanism,” the RBI said.
The central bank has asked entities to frame specific policies for co-lending arrangements, covering internal limits, grievance redressal, due diligence, fees payable, target borrowers, and other conditions. They must also provide upfront disclosures on the roles of the entities involved.
If a loan is classified as a Special Mention Account (SMA) or non-performing asset (NPA) by one lender, the same classification must be applied by the co-lending partner for its exposure to that borrower.
“REs shall apply a borrower-level asset classification for their respective exposures to a borrower under CLA, implying that if either of the REs classifies its exposure to a borrower under CLA as SMA/NPA on account of default in the CLA exposure, the same classification shall be applicable to the exposure of the other RE to the borrower under CLA. REs shall put in place a robust mechanism for sharing relevant information in this regard on a near real-time basis, and in any case latest by the end of the next working day,” the RBI said.
Any subsequent transfer of loans under a co-lending arrangement to third parties must comply with the norms on the transfer of loan exposures and can be undertaken only with the mutual consent of both the originating and partner REs.
