CXOToday has engaged in an exclusive interview with Kaushal Verma, Associate Vice President− Banking Centre of Excellence, Newgen Software
- Please explain the co-lending policy and highlight its primary objectives in the Indian context.
The Reserve Bank of India (RBI) introduced the co-lending policy to increase credit flow in the priority sector and bridge the financial gap in the economy. Under the co-lending policy, banks can partner with registered Non-banking Financial Companies (NBFCs) based on a predefined risk and reward ratio. While NBFCs remain the single point of interface for customers, they receive loans from banks and transfer them to the priority sector. Co-lending sets up a mechanism to extend credit services till the last mile and makes credit affordable for the priority sector.
- How does the co-lending policy empower the borrowers, especially at the grass-root level?
The co-lending policy aims to empower the traditionally unbanked sections. As NBFCs receive most of the capital from public sector banks (PSBs), the model enables them to provide credit at affordable interest rates to end customers. With co-lending, banks are tapping into markets such as farmer producer organizations, farm mechanization, and warehouse receipt finance. The cheaper credit is helping farmers improve their financial status and grow further. It also rejuvenates masses who depend on Micro, Small, and Medium Enterprises (MSMEs) for their livelihood.
Dissemination of financial knowledge and education is another benefit of the co-lending model. As NBFCs educate their customers about the terms and conditions of loans and the processes associated with them, it promotes financial literacy and inclusion.
- Does the co-lending model make credit services more viable for banks and NBFCs?
The co-lending model allows lenders to scale by finding partners with a suitable product-market fit. It helps lenders ensure optimum utilization of capital and reduce liability. Under the model, lenders can prevent a negative impact on the profit and loss statement as the on-balance sheet spread remains less than or at most equal to the off-balance sheet spread. It also helps prevent system liability as co-lending is a partnership between banks and NBFCs where both parties must maintain strict compliance.
- What role does technology play in co-lending? How is Newgen facilitating the co-lending model?
Technology can play a pivotal role in helping banks streamline their co-lending activities. Banks can rapidly process applications and disburse more loans through process automation and decision-making tools. Artificial intelligence and machine learning capabilities can help lenders analyse customer behaviour and predict their probability of default. By investing in tech-enabled solutions, banks can improve their margins while ensuring timely credit for customers.
Newgen offers a co-lending solution that enables financial institutions to streamline their processes. The solution comes with standard modules like partner onboarding, application assessment, escrow management, funds appropriation, reconciliation, collections, and MIS reports, enabling seamless journeys across various co-lending products. We are currently working with leading PSBs across India and automating their co-lending processes.
