KOCHI: The State Bank of India (SBI) has tied up Muthoot Microfin, the Kochi-based microfinance institution, to initiate loan disbursals under its co-lending partnership.
State Bank of India has similar co-lending arrangement with several NBFCs, including U GRO Capital, Capri Global, etc.
Banks are increasingly tying up with NBFCs for co-lending that gives them better rates. HDFC Bank, ICICI Bank, and Axis Bank also have similar arrangements with NBFCs like Bajaj Finserv, IIFL, and others.
Under the co-lending collaboration with Muthoot Microfin, SBI has sanctioned Rs500 crore limit to be disbursed in tranches of Rs100 crore.
Loan amounts ranging from Rs50,000 to Rs3 lakh will be extended to identified and eligible customers, focusing primarily on members of Joint Liability Groups (JLGs) engaged in agricultural and allied activities, as well as other income-generating ventures.
Co-lending
Co-lending is a lending arrangement where a bank and a non-banking financial company (NBFC) jointly extend credit to borrowers.
Under this model, both entities share the loan in a pre-agreed proportion. Typically the bank funds the majority (usually 80 per cent) of the loan.
The NBFC funds the rest (20 per cent) and manages the loan origination, servicing, and collections. The Reserve Bank of India (RBI) introduced the Co-Lending Model (CLM) in 2020 to improve credit penetration, particularly in underserved rural and semi-urban areas.
Muthoot Microfin’s gain
Partnering with a large bank like SBI allows Muthoot to leverage SBI’s resources to expand its loan portfolio without requiring a proportionate increase in capital.
Moreover, banks typically have access to cheaper funds compared with NBFCs. The co-lending arrangement allows Muthoot to offer competitive interest rates while maintaining profitability.
SBI’s gain
Muthoot’s expertise in reaching last-mile customers, especially in rural areas, complements SBI’s efforts to expand its reach.
NBFCs like Muthoot handle customer onboarding, loan disbursal, and collections, reducing operational strain for the bank.
Loans disbursed under co-lending, particularly to Joint Liability Groups (JLGs) and small businesses, qualify for PSL targets for banks.
