RBI looks askance at co-lending arrangements

after getting off strongly on banking and financial technology partnershipsIt became syndicated lending structures that caught the attention of the Reserve Bank of India. The exponential growth of loans lent through this model made regulator not comfortable with the arrangement.

To put things in perspective, for the Rs 5,000 crore loans generated through syndicated lending in FY22, the recently ended financial year saw the number jump more than five-fold to Rs 25,000 crore.

biggest concern

“Some of these syndicated lending arrangements are entered into by medium and small sized banks with non-banks that do not have a long history or proven track record. In such cases, the regulator is concerned about whether the checks and balances are sufficient to ensure there are no underwriting loopholes, said a senior executive at a private bank.

However, the major banks appear to be cautious about such arrangements.

For example, KVS Manian, full time manager, Kotak Mahindra Bank, in an interview with business line, He said the model hasn’t advanced much yet for a bank to feel comfortable with.

The regulator is also perplexed that when some sectors such as the mortgage market are experiencing a slowdown in demand, loans lent through syndicated lending agreements have grown at a mind-boggling pace.

Low ticket credits

Another high-ranking source with knowledge of the matter said: “We need to see if some of the previous loopholes in the securitization model are being exploited by lenders in the syndicated lending model.”

Hence, in banks and non-banking financial firms, where these partnerships have experienced above-average growth, the regulator checks if the customer the bank acquired from NBFC is an exclusive customer or if it was served by another bank before joining to the bank.

“Especially with low-ticket loans, there are reasons to believe there could be some sort of permanent renewal of loans going on in the system and the aim of increased oversight is to clamp down on such practices,” said the source quoted above.

After continuous review, it is expected that the regulations for syndicated lending arrangements will be tightened.