Co-Lending Model for Banks-NBFCs

  Jan 18, 2022

Co-Lending Model for Banks-NBFCs

Q Why is it in News ?

A A November 2020 decision by the RBI to permit banks to “co-lend with all registered NBFCs based on a prior agreement” has led to unusual tie-ups between the banks and companies. 

Q What is the ‘Co-Lending Model’ ?

Q What will be the Repercussions of Co-Lending ?

A 1. Bank-NBFC tie-ups at indiscriminate scale

2. Greater risk in co-lending

3.Corporates in banking

Q What is Non-Banking Financial Company (NBFC) ?

NBFC business:

The NBFC business does not include business whose principal business is the following:

  1. Agricultural Activity
  2. Industrial Activity
  3. Purchase or sale of any goods excluding securities
  4. Sale/purchase/construction of any immovable property – Providing of any services

Q What is difference between Banks and NBFCs ?

  1. NBFC cannot accept demand deposits;
  2. NBFCs do not form part of the payment and settlement system and cannot issue cheques drawn on itself;
  3. Deposit insurance facility of Deposit Insurance and Credit Guarantee Corporation is not available to depositors of NBFCs, unlike in the case of banks.