Credit and financing for MSMEs: Public sector lender Bank of Baroda on Monday announced the launch of its end-to-end digital platform for loan co-lending in partnership with Non-Banking Financial Companies (NBFCs). The platform uses rules-based algorithms for underwriting, enables credit score checks, enables co-loan product offerings for retail, MSMEs and agriculture and increases efficiency processes, the bank said. The platform can handle both non-discretionary and discretionary co-lending models for secured and unsecured credits as per the latest Reserve Bank of India (RBI) guidelines on co-lending model. Bank of Baroda currently has co-lending links with non-bank 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 linked up with U GRO Capital. There are about four more players in the pipeline to come on board the platform. had no end-to-end digital platform for co-lending in India, everything was done manually or what was flagged as co-lending was actually direct assignments,” said Akhil Handa, digital director of the Bank of Baroda Financial Express online.
Bank of Baroda’s new platform will align demand generation, escrow management and collection management, which are the most important features of the co-lending platform, a added Handa.
Bank of Baroda is seeking to secure 10 NBFCs on the platform and is targeting a loan book of Rs 10,000 crore in co-loan in two years. However, the bigger ambition, Handa said, is to lower the final interest rate for borrowers, who have borrowed between 18 and 24 percent. The only way to reduce it is to use an end-to-end co-lending technology platform, he said. Usually the interest rate through the co-loan is around 8% and above.
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Co-lending as a model emerged in 2018 when the RBI announced the framework for co-lending by banks and NBFCs for lending to priority sectors. The framework was rebranded as co-lending in November 2020 under which the risk is shared in an 80:20 ratio – 80% loan with the bank and at least 20% with NBFC.
“The digital co-lending platform will pave the way for both Bank of Baroda and our NBFC partners to onboard and enable lending to borrowers with an enhanced TAT. Co-lending is a priority area for the Bank and we believe this cutting-edge platform will help achieve important milestones in the years to come,” said Vikramaditya Singh Khichi, Executive Director, Bank of Baroda.
Co-lending as a model is gaining acceptance by banks including State Bank of India, Union Bank of India, Central Bank of India, IndusInd Bank, Yes Bank, Punjab National Bank, etc and lending more to people and businesses in rural areas in particular, under the priority sector lending program.