Co-loan standards: Technical integration can prove to be an obstacle

Mumbai: Both regular banks and non-banking lenders could move to the direct allocation route on Co-Lent Assets, anticipating a delay in such deals after the central bank decided to sharpen the rules, said industry experts. The co-loan industry is estimated at more than £ 1 lakh crore.

Credit providers said that the new reserve Bank of India (RBI) would require significant technological integration between banks and non-Bancar Financial Companies (NBFC) rules, which increases operational complexity.

“For a highly valued non-banking lender with stable banking lines and liquidity, the additional compliance, 15-day allocation window and credit policy lines cannot justify the administrative complexity,” said the CEO of an NBFC. “But for a low-rated NBFC or HFC struggling to collect funds, the new regulation together with standard loss guarantee (DLG) is a game change.

Stricter rules can lead to a delay in the co-loans of operational intensive assets such as home loans, loans against ownership and MSME loans, because these usually hold out timelines with longer payment, experts said. Different standards for asset classifications between banks and NBFCs can cause challenges in complying with uniform classification standards under the revised guidelines.

According to the new rules, DLG is tucked to the financing partner at 5% of the pooled loan amount. The warranty must only be invoked after 90 days of delinquency and must be extinguished within 120 days after call.

Insiders from the industry say that smaller NBFCs can still arise, while the credit risk is partially treated by the DLG mechanism that scales their ability to increase in a responsible manner, under the earlier co-lending model, a Sourcing partner can hold a loan for a few months. This spread allocation window created flexibility when managing onboarding time lines, credit filters and system synets. That flexibility has now disappeared.

According to the new standards, the assignment must be completed within 15 days after the loan has been created. Loans must be from a jointly approved credit policy and unilateral insurance or deviation. All conditions, conditions and the nature of co-loans must be announced in advance to the customer.

Yashoraj Tyagi, CEO of the Digital Lending Platform, Cashe, said that the revised standards of RBI offer the much -needed regulatory clarity and broadens the scope of eligible credit partners.

“At the same time, the increased operational responsibilities, including mandatory Escrow schemes, improved Diligence of partner activities and integration of CO-credit protocols within internal credit policy will require significant investments in compliance, technology and governance.”