Policy on Co-Lending Module
- priority sector as specified by RBI.
- Non-priority sector, that is loans that do not qualify as a priority sector as per RBI guidelines.
- Option (a): The arrangement would entail a joint contribution of credit by both the Company and the Bank (“Lenders”) basis ex-ante due diligence by the Bank.
- Option (b): Under this option, the Bank shall take over its share in the exposure after disbursement of the loan on the basis of a pre-agreed credit policy on a back-to-back basis subject to due diligence.
- Fixed Rate - Based on the respective interest rates and proportion of risk sharing, a single blended interest rate shall be offered to the ultimate borrower in case of fixed rate loans.
- Floating Rate - In the scenario of floating interest rates, a weighted average of the benchmark interest rates in proportion to the respective loan contribution, shall be offered.
- If the Agreement entails a prior, irrevocable commitment on the part of the Bank to take into book the share of individual loans as originated by Myloancare, the arrangement must comply with the extant guidelines on Managing Risks and Code of Conduct in outsourcing Financial Services by Banks issued by RBI vide RBI/2014-15/497/DBR No. BP: BC:76:/21.04.158/2014-15 dated March 11, 2015, and updated from time to time. In particular, there should be suitable mechanisms for ex-ante due diligence as the credit sanction cannot be outsourced under the extant guidelines.
- Compliance with the applicable Master Directions on KYC and AML issued by RBI from time to time is to be done, which already permit regulated entities, at their option, to rely on customer due diligence done by a third party, subject to specified conditions.
- If the Co-Lender exercises its discretion regarding taking into its books its share of the loans originated by Myloancare as per the Agreement, the arrangement will be akin to a direct assignment transaction. Accordingly, compliance with all the requirements in terms of Guidelines on Transactions Involving Transfer of Assets through Direct Assignment of Cash Flows and the Underlying Securities issued by RBI vide RBI/2011-12/540 DBOD.No.BP.BC103/21.04.177/2011-12 dated 07.05.2012 and RBI/2012-13/170 DNBS.PD.No.301/3.10.01/2012-13 dated 21.08.2012 respectively, as updated from time to time are to be ensured, with the exception of Minimum Holding Period (MHP) which shall not be applicable in such transactions undertaken in terms of CLM.
- The Minimum Holding Period exemption shall be available only in cases where the prior agreement between Myloancare and the Co-Lender contains a back-to-back clause and complies with all other conditions stipulated in the guidelines for the direct assignment.
- The applicable guidelines for Direct Assignment under CLM, shall be referred from above-said policy, as updated from time to time.
- History of borrowing with the co-lenders as well as other lenders if any, various credit checks viz. bureau, internal de-dupe, and fraud/risk checks, OVD or KYC documents.
- Assessment of income, business/job vintage, stability, etc.
- A Master Agreement shall be entered into between Myloancare and the Co-Lender, which shall inter-alia include, terms and conditions of the arrangement, the criteria for selection of partner institutions, the specific product lines and areas of operation, along with provisions related to segregation of responsibilities & dispute resolution as well as customer interface and protection issues.
- The Master Agreement contains necessary clauses on representations and warranties which the originating NBFC and Co-Lender shall be liable for in respect of the share of the loans taken into their respective books.
- All legal modalities that would be covered under this definitive agreement are to be vetted by the legal department/ Solicitor/ Advocate/ Legal Consultant / empaneled consultant/ lawyer of each lender.
- Loan agreements shall be drafted and finalized in consultation between Myloancare and the Co-Lender and would be vetted by the legal department/ Solicitor/ Advocate/ Legal Consultant of both.
- -Lender may entrust Myloancare with the responsibility of execution of documents on the bank’s behalf.
- Further, this arrangement is to be captured in the Master Agreement with NBFC.
- The Sanctioning authority of the Co-Lending Loan shall ensure that the conduct of the borrower/group account is a satisfactory and regular review of facilities is not pending for the concerned borrower.
- The recommendation/views of the concerned branch of the borrower are obtained.
Co-lending refers to lending in partnership with other regulated entities such as banks and Non-Banking Finance Companies (hereinafter referred to as “NBFCs”)
Vide reference no. RBI/2020-21/63, FIDD.CO.Plan. BC.No.8/04. 09.01 /2020-21 dated November 05, 2020 (“CLM”), the Reserve Bank of India (hereinafter referred to as “RBI”) to improve the flow to priority sector of the economy and make available funds to the ultimate beneficiary at an affordable cost, considering the lower cost of funds from banks and a greater reach of the NBFCs. This revised scheme was issued in the supersession of the erstwhile circular applicable for co-origination of loans by Banks and NBFCs for lending to the priority sector bearing reference number FIDD.CO.Plan.BC.08/04.09.01/ 2018- 19 dated September 21, 2018. The said RBI policy is applicable for co lending to priority sector with an NBFC as an originator and a bank as a co-lender. Accordingly, all scheduled commercial banks (excluding Regional Rural Banks and Small Finance Banks) may engage with NBFC’s to co-originate loans for the creation of priority sector assets.
The arrangement entails joint contribution of credit at the facility level by both lenders. It also involves sharing of risks and rewards between the lending partners for ensuring appropriate alignment of respective business objectives, as per the mutually decided master agreement. In the case of lending done to the priority sector, the participating bank can claim priority sector status in respect of its share of credit while engaging in the co-origination arrangement. However, the priority sector assets on the bank’s books should at all times be without recourse to the NBFC.
Other cases of co-lending may involve joint lending by two or more NBFCs or joint lending to sectors other than the priority sector. There is no prescribed RBI guideline in respect of such situations.
Myloancare Ventures Private Limited (hereinafter referred to as “Myloancare” or the “Company”), in compliance with RBI circular no. RBI/2020- 21/63 vide FIDD.CO.Plan.BC.No. 8/04.09.01/2020-21 dated November 05, 2020, on “Co-Lending by Banks and NBFCs to Priority Sector” (superseding the earlier circular FIDD.CO.Plan.BC.08/04.09.01/2018-19 dated September 21, 2018 ) is adopting the policy on Co-lending of loans with effect from 16th January 2023 and the same shall be applicable to all co-lending arrangements of the Company.
The primary focus of the revised RBI scheme, rechristened as the “Co-Lending Model” (CLM), is to improve the flow of credit to the unserved and underserved sector of the economy and make available funds to the ultimate beneficiary at an affordable cost, considering the lower cost of funds from banks/other NBFC’s participating as co-lender and the greater reach of Myloancare, primarily on account of its digital reach and underwriting capabilities.
The Company may enter into arrangements with other RBI-registered banks and/or NBFCs for Co-Lending. The arrangement should entail a joint contribution of credit at the facility level by both lenders. It should also involve sharing of risks and rewards between the Lenders for ensuring appropriate alignment of respective business objectives, as per the mutually decided agreement between Myloancare and the Co-Lender, inter alia, covering the essential features as indicated in RBI guidelines on the Co-Lending Model. This policy is applicable on loans extended to borrowers jointly by Myloancare and participating banks/ NBFC to:
The Master Agreement entered into by the bank and MyLoanCare for implementing the CLM may provide for and specify one of the following options:
|RBI||Reserve Bank of India|
|NBFC||All Registered Non-Banking Financial Companies (NBFCs) including
Housing Finance Companies (HFCs)
|KYC||Know Your Customer|
|AML||Anti – Money Laundering|
|MHP||Minimum Holding Period|
|Master Agreement||The Master Agreement entered into with NBFC for implementing the CLM|
|HFC||Housing Finance Company|
|DLP||Discretionary Lending Power|
|Co-Lender||RBI registered bank/ NBFC that is partnering with Myloancare for Co-Lending|
4. Features of The Co-Lending Model (CLM)
4.1 Sharing of Risk and Rewards
In case of priority sector lending – At least 20% of the credit risk by way of direct exposure shall be on Myloancare books till maturity and the balance 80% will be on Co-Lender’s books. Myloancare shall give an undertaking to the Co-Lender that its contribution towards the loan amount is not funded out of borrowing from the co-lending bank or any other group company of the partner bank.
The Co-Lender will take its share of the individual loans on a back–to–back basis in its books. However, NBFC shall be required to retain a minimum of 20% share of the individual loans on their books. However, the Co-Lender shall have discretion for taking into its books the loan originated by NBFC in compliance with RBI guidelines. Further, NBFC should seek the consent of the Co-Lender before granting an additional loans to the borrower outside the co-lending arrangement.
In case of non-priority sector lending – Such part of the credit risk by way of direct exposure as may be mutually agreed between Myloancare and the Co-Lender shall be on Myloancare books till maturity and the balance will be on Co-Lender’s books. Myloancare shall ensure that its contribution towards the loan amount is not funded out of borrowing from the Co-Lender or any other group company of the Co-Lender.
Myloancare shall seek the consent of the Co-Lender before granting an additional loans to the borrower outside of the co-lending arrangement.
4.2 Classification of Co-Lending Loans
For non-priority sector loans - Lending is to be made for such purpose as may be permissible under applicable RBI guidelines and approved as part of the jointly agreed credit policy between Myloancare and the Co-Lender.
4.3 Interest Rate
Rate of interest may be under both Fixed and Floating rate regime based upon mutually agreed terms of Myloancare and the Co-Lender. The ultimate borrower shall be charged an all-inclusive interest rate as agreed upon with Myloancare conforming to the extant guidelines applicable to both.
The interest rate charged by the Co-Lender for its portion of credit shall be subject to applicable directions on interest rates on advances. Further, the NBFCs are also required to abide by the pricing of credit and other applicable guidelines for loans covered under “Qualifying Assets” regarding their contribution towards the Co-Lending Loan. It is envisaged that the benefit of low-cost funds from banks and lower cost of operations of NBFCs would be passed on to the ultimate beneficiary through the blended rate/ weighted average rate. In this regard, Myloancare and Co-Lender shall provide all the information like loan details including interest rate and other charges, details of risk sharing arrangement, etc. as and when called for by the Reserve Bank of India.
Myloancare would have the flexibility to price its part of the exposure, while Co-Lender shall price its part of the exposure in a manner found fit as per its risk appetite, credit policy, interest rate policy, risk assessment of the borrower, and the RBI regulations issued from time to time. However, notwithstanding the charging of a single blended/weighted average rate of interest from the borrower, the repayment/ recovery of interest shall be shared between Myloancare and the Co-Lender in proportion to their share of credit and interest.
4.4 Know Your Customer (KYC)
Both Myloancare and Co-Lender shall strictly adhere to the applicable KYC guidelines, as prescribed by the Department of Regulation (DoR)/ Department of Supervision (DoS) or vide RBI Master Directions on KYC as updated from time to time, which permit regulated entities, at their option, to rely on customer due diligence done by another regulated entity, subject to specified conditions.
4.5 Customer Service
Myloancare shall be the single point of interface for the customers and shall enter into a loan agreement with the borrower, on behalf of itself and the Co-Lender (pursuant to the master agreement with the Co-lender) which shall clearly contain the features of the arrangement and the roles and responsibilities of each party. All details of the arrangement shall be disclosed to the customers upfront, and their explicit consent shall be taken.
For loans sourced/disbursed through a digital interface, Myloancare shall comply with RBI’s Digital Lending Guidelines, as applicable.
The extant guidelines relating to customer service, grievance redressal, and Fair Practices Code and the obligations enjoined upon Myloancare and the Co-Lender therein shall be applicable mutatis mutandis in respect of loans given under this arrangement.
4.6 Grievance Redressal
4.6.1 It shall be the responsibility of Myloancare to explain the end-to-end process & procedure to borrowers regarding the difference between products offered through the co-lending model as compared to its own products.
4.6.2 Myloancare, being the front-ending lender will be primarily responsible for providing the required customer service and grievance redressal to the borrower.
5. Loan Sanction
In case of priority sector lending
The Master Agreement entered into between Myloancare and Co-Lender for implementing the CLM may provide either to mandatorily take their share of individual loans as originated by the NBFCs in its books or retain the discretion to reject certain loans subject to its due diligence.
There are two options for sanction of loan under CLM -
(a) Irrevocable Commitment on the part of the Co-Lender to take into book, its share of individual loans as originated by Myloancare:
(b) Discretionary arrangement On part of the Co-Lender to take a portion of the loans originated by Myloancare, this be done in compliance with the RBI guidelines on the Transfer of Assets through Direct Assignment.
In case of non-priority sector lending
The Master Agreement entered into between Myloancare and Co-Lender for implementing the CLM shall specify the mutually agreed mechanism for sanction of the individual loans under the co-lending arrangement. The same shall always comply with applicable RBI guidelines, as amended from time to time.
DISBURSEMENT AND COLLECTION Account(s)
The Master Agreement shall specify the manner of appropriation between the co-lenders. Myloancare shall generate a single unified statement of the customer, through appropriate information-sharing arrangements with the Co-Lender.
In case of priority sector lending
The Co-Lender and NBFC shall maintain each individual borrower’s account for their respective exposures. However, all transactions (disbursements/ repayments) between the Co-Lender and NBFC relating to CLM shall be routed through an Escrow account maintained with the Co-Lender bank in order to avoid intermingling of funds.
In case of non-priority sector lending
The Master Agreement entered into between Myloancare and Co-Lender for implementing the CLM shall specify the disbursement account and the collection account to be used for the purpose of loan disbursed under the co-lending arrangement. An account in the name of either Myloancare or Co-lender or an escrow account may be designated as a disbursement/ collection account. No payment shall be collected from the borrower in the name of any third party. The Master Agreement shall clearly specify the manner of appropriation between the co-lenders. The payments received from customers shall be apportioned between Myloancare and the Co-Lender as per the terms of the arrangement and be settled periodically. The same shall always comply with applicable RBI guidelines, as amended from time to time.
6. Credit Norms
Applicable credit norms for each program shall be agreed in writing between Myloancare and the Co-Lender and shall include various parameters like:
7. Monitoring & Recovery
Both lenders shall create the framework for day-to-day monitoring and recovery of the loan, as mutually agreed upon. The regulatory guidelines, board approved code of conduct and fair practice code should be followed in case of collection of dues and repossession of security by both the lenders.
8. Security and Charge Creation
Myloancare along with Co-Lender, as per and subject to the terms of master agreement, shall arrange for creation of security and charge as per mutually agreeable terms in case of secured loans.
9. Provisioning and Reporting Requirement
Each lender shall adhere to the asset classification and provisioning requirement, as per the respective regulatory guidelines applicable to each one of them including reporting to Credit Information Companies, under the applicable regulations for its share of the loan account.
In event of default, provisions shall be provided as per Board approved policy in books of each lender for the defaulted loan/s. Any additional provisions shall be made on case-to-case basis.
10. Assignment or Change in Loan Limits
Any assignment of loans by any of the lenders to a third party can be done only with the mutual consent of both lenders. Further, any change in the loan limit of the co- lending facility can be done only with the mutual consent of both lenders.
11. Inspections and Audit
The loans under the CLM shall be subjected to periodic internal/statutory audits within Myloancare and Co-Lender to ensure adherence to its internal guidelines, terms of the agreement, and extant regulatory requirements.
12. Business Continuity Plan
Both Myloancare and the Co-Lender shall implement a business continuity plan to ensure uninterrupted service to the borrowers till repayment of the loans under the co-lending agreement.
13. Terms & Conditions for Co-Lending Module
13.1 Co-Lending Product Detailed products and processes are finalized after strategic discussion between Myloancare and Co-Lender, on a case-to-case basis, keeping in view its target segment, area of operations, other operational issues, reporting and MIS management, etc.
A Mutually agreed product program will be decided for determining the model of sourcing, pricing, lending, collection and recovery mechanism, servicing fees, etc., duly approved by respective competent authorities. Tenure of such product program may be mutually agreed upon and be incorporated in the Master Agreement.
13.2 Documentation Any legal document including Master Agreement, Facility Agreement, and any document having legal implications under this arrangement would be finalized in consultation with Myloancare and Co-Lender would be legally vetted before execution.
13.3 Cross Sell
Myloancare and Co-Lender shall have rights to cross-sell its other products and its associate’s products to the canvassed customers under the Co-lending Model program, the extent of which would be detailed in the proposal which shall be approved and sanctioned by the respective competent authorities of lenders in Master Agreement, duly vetted.
14. Validity and Period of Policy
The Policy shall be continued from the date of approval, however, review is to be undertaken on yearly basis, if there is any change in the regulatory guidelines or in Myloancare or Co-Lender's internal guidelines. Any regulatory guidelines issued by RBI/ Government; post-approval shall form part of this Policy Pending Formal Inclusion at the time of review of the Policy. The existing Policy will be valid and continue as per the master agreement till the next review.
14.1 Master Agreement
14.2 Loan Documents
14.3 Co-Branding of Documents
Myloancare being the front-ending partner and representing both the lenders in front of the customer, it is desirable for all the parties to have a co-branded set of documents to smoothen the process for customer facilitation and awareness.
Common Documents include but are not limited to – Application forms, Sanction letters, Facility Agreements, and/or any other document communicated to the customer having any legal implication.
14.4 Standalone Sanction of Co-Lending Loan
If any existing borrower of the Co-Lender is sourced by Myloancare, then the facility under Co - Lended loan will be assessed & sanctioned on a standalone basis i.e., without linking the existing individual/group with the Bank for the purpose of Discretionary Lending Power (DLP), subject to:
14.5 Safe Custody And Storage Of Documents
Since it is a co-lending arrangement, the documents may be kept in electronic copy with both Lenders or under a third-party repository as mutually agreed upon making it convenient for retrieval. This will be subject to the conditions that duly attested/ certified scanned copies and or physical copies of all the executed documents will be provided to the Co-Lender as and when required by request in writing or through official e-mail.
The Master Agreement may inter-alia contain the suitable clauses, including the indemnity clause with the right to retrieve the documents jointly with Myloancare or Co-Lender, as applicable from the third-party repository under certain conditions arising out of natural or unnatural conditions with appropriate information to NBFC with its concurrence.
Suitable clauses should be incorporated in the agreement to ensure that in case of liquidation of either lender or if otherwise required by the other Lender, all the documents should be retrieved as and when required within a certain time frame.
15. Policy Administration and Review
The Policy is approved by the Product and Credit Committee of Myloancare Venture Private Limited and the same committee is also responsible for its ownership, review, and maintenance. The policy has been approved by the Board of Directors w.e.f. 16th January 2023. Any queries related to the Policy or requests for any modification will be addressed to the respective department.