Consider the following Statements regarding Co Lending Model CLM The primary focus of the lsquo Co L...........

Economic Affairs Types of Banks and Banking

Download Solution PDF

Consider the following Statements regarding Co-Lending Model (CLM)

The primary focus of the ‘Co-Lending Model’ (CLM) is to “improve the flow of credit to the unserved and underserved sector of the economy.
Under the CLM, NBFCs are required to retain at least a 20% share of individual loans on their books.
In the CLM, Majority of the risk will be with the banks, who will take the big hit in case of a default.

Select the correct statement.

1&2 only

2&3 only

1&3 only

All of the above

छोटे Courses बड़े Results

Master Types of Banks and Banking

Prepare through Micro-courses

Try Now

Explanation:

Statement 1 is correct: The primary focus of the ‘Co-Lending Model’ (CLM) is to “improve the flow of credit to the unserved and underserved sector of the economy.
Statement 2 is correct: Majority of Responsibility Lies with the Banks: Under the CLM, NBFCs are required to retain at least a 20% share of individual loans on their books.
Statement 3 is correct: This means 80% of the risk will be with the banks — who will take the big hit in case of a default.
In effect, while the banks fund the major chunk of the loan, the NBFC decides the borrower.

About the Co-Lending Model

In September 2018, the RBI had announced co-origination of loans” by banks and NBFCs for lending to the priority sector.
The arrangement entailed joint contribution of credit and sharing of risks and rewards. Co-lending or co-origination is a set-up where banks and non-banks enter into an arrangement for the joint contribution of credit for priority sector lending.
These guidelines were later amended in 2020 and rechristened as co-lending models (CLM) by including Housing Finance Companies and some changes in the framework.
Under priority sector norms, banks are mandated to lend a particular portion of their funds to specified sectors, like weaker sections of the society, agriculture, MSME and social infrastructure.

Objective: The primary focus of the ‘Co-Lending Model’ (CLM) is to “improve the flow of credit to the unserved and underserved sector of the economy.

It also envisages making available funds to the ultimate beneficiary at an affordable cost.

Underlying Idea: CLM seeks to better leverage the respective comparative advantages of the banks and NBFCs in a collaborative effort.

The lower cost of funds from banks

Greater reach of the NBFCs.
For example, CLM will enhance last-mile finance and drive financial inclusion to MSMEs.
Example of CLM: SBI, the country’s largest lender, signed a deal with Adani Capital, a small NBFC of a big corporate house, for co-lending to farmers to help them buy tractors and farm implements.

Hence option 4th is correct.