Include deposit-taking NBFCs in co-origination model: FIDC to RBI

• The Finance Industry Development Council (FIDC) has pitched for the inclusion of deposit-taking NBFCs in the co-origination model proposed by the RBI.

• All NBFCs with an asset base of over Rs 500 crore should be allowed in this model, said Raman Aggarwal, Chairman, FIDC.

FIDC sees no logic

• FIDC is a self-regulatory body for asset-financing. “FIDC welcomes the RBI’s initiative towards co-origination of loans by banks and NBFCs. However, we do not see any logic in restricting it to only non-deposit taking NBFCs.”

• He said that the prevailing regulatory framework of the RBI is the same for both deposit-taking and non-deposit taking systemically important (having asset base of Rs 500 crore and above) NBFCs.

• “We have requested the RBI to consider allowing all NBFCs with an asset base of Rs 500 crore and above to participate in co-origination. This will give a big boost to this model as deposit-taking NBFCs have very large customer bases who would fit in the definition of priority sector.”

RBI Guidelines

• The RBI is expected to issue the guidelines on co-origination of priority sector loans by end-September 2018.

• The RBI in a bid to give a leg-up to priority sector lending said all scheduled commercial banks would be allowed to co-originate loans with non-banking financial companies (NBFCs) for creating eligible priority sector assets.

RRBs, SFBs excluded

• However, the RBI has excluded RRBs and Small Finance Banks from co-origination, as most of the loans they originate are priority sector loans.

• Further, only NBFCs classified as non-deposit taking systemically-important can get into co-origination arrangements with scheduled commercial banks.

• The central bank has said that the co-origination arrangement should entail joint contribution of credit by both lenders at the facility-level. It should also involve the sharing of risks and rewards between the banks and the NBFCs for ensuring appropriate alignment of respective business objectives as per their mutual agreement.

• Priority sector loans cover a wide gamut of issues, including loans given to the agricultural sector (farm credit, agriculture infrastructure and ancillary activities), micro, small and medium enterprises (MSMEs), export credit, education, housing, social infrastructure and renewable energy, among others.

• Within priority sector lending, there are sub-targets for agriculture, micro-enterprises, and advances to weaker sections.