(FE)
The Reserve Bank of India (RBI) on Friday announced the co-origination model between banks and non-banking financial companies. Under the new guidelines, all scheduled commercial banks (excluding regional rural banks and small finance banks) may engage with non-banking financial companies- non-deposit taking-systemically important (NBFC-ND-SIs) to co-originate loans for the creation of priority sector assets.
The arrangement should entail joint contribution of credit at the facility level by both lenders. It should also involve sharing of risks and rewards between the bank and the NBFC for ensuring appropriate alignment of respective business objectives, as per the mutually decided agreement between the bank and the NBFC. The new guidelines stated that 20% of the credit risk by way of direct exposure shall be on NBFC’s books till maturity and the balance will be on bank’s books. The NBFC shall give an undertaking to the bank that its contribution towards the loan amount is not funded out of borrowing from the co-originating bank or any other group company of the partner bank.
