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Co-lending Business

Co-lending is a financing arrangement in which Banks and NBFCs (including Housing Finance Companies) jointly provide loans to borrowers. The lenders collaborate to provide a single loan to the borrower, sharing the risk and profits associated with the loan.

Co-lending is used by banks to quickly cover their priority sector lending targets by tying up with NBFCs. It works as a win-win for both parties as each leverages the other’s strength to jointly service the customer. Banks have large capital, while NBFCs and smaller banks provide access to the customer base at remote locations.

In CLM-1, banks and NBFCs collaborate to approve and disburse loans via a shared routing account, maintaining a predetermined ownership division (usually 80:20). The loan receives sanction only when both entities concur and give their approval. Repayments are gathered in the routing account and allocated proportionally. The interest rate is a blend, representing the rates of both lenders. According to RBI guidelines

In CLM-2, NBFCs independently originate and disburse the loan, after which the bank reimburses up to 80% of the loan amount. Unlike CLM-1, the bank can decline participation even after disbursement, based on its due diligence. The NBFC maintains at least a 20% share of the loan, keeping its risk exposure. This model provides banks with greater flexibility while allowing NBFCs to utilize their origination skills and customer network.

Co-lending is a collaboration between banks and NBFCs where they jointly own, share the risk, and handle repayment responsibilities for loans. On the other hand, Direct Assignment involves the NBFC selling a pool of loans to a bank, allowing it to recover up to 90% of its capital immediately. Even after selling the loans, NBFCs keep a small portion (typically 10%) and may continue to service the loans, earning fees and monthly income.

Explore our lending software solution for direct assignment.

With co-lending becoming a strategic tool for expanding credit access and meeting regulatory goals like Priority Sector Lending (PSL), our solution enables both originators and co-lenders to collaborate efficiently with efficient credit processing, loan management, and portfolio monitoring, enabling them to make informed lending decisions and reduce credit risks.

Call our solution experts directly at (+91) 99206 28792 or write to us at dishant@simsol.in. We shall understand your use-case and personalize the demo session to your requirement.