Not just SBI, other PSU banks have co-lending pacts with NBFC's

Not just the State Bank of India (SBI), but other public sector banks, including Punjab National Bank (PNB), Central Bank of India (CBI), Bank of India (BOI) and the Bank of Baroda (BOB) have agreements for co-lending, underscoring the potential of partnerships that address the 2018 regulatory mandate for priority sector loans.

The arrangement received a further fillip with the recent tie-up of SBI with Adani Capital. Earlier, India's largest commercial bank had signed similar agreements with Vedika Credit, Save Microfinance, Paisalo Digital and ECL Finance, a subsidiary of Edelweiss Financial Services.

Similar co-lending pacts exist including that of PNB and CBI with IIFL Home Finance, BOI with MAS Financial Services and the Bank of Baroda with U GRO Capital.

Even private sector banks have co-lending tie-ups including the likes of ICICI Bank, IndusInd Bank and Standard Chartered Bank among others.

Co-lending refers to joint lending by banks and non-banking financial institutions (NBFC's). Such arrangements typically involve the banks taking on the majority of the risk in an 80:20 ratio with the NBFC partner.

Reacting to recent remarks by former Kerala finance minister Thomas Isaac alleging about that the SBI-Adani Capital tie-up, a source in the know of the pact said there is "nothing unusual" about the agreement aimed at co-lending to farmers for the purchase of tractor and other farm equipment. "Such agreements between public sector banks and NBFCs cater to different sectors", he said.

A tweet by Isaac had claimed, "SBI, 25000 branches and Rs 48 lakh crores assets, teaming up with Adani Capital, 63 branches and Rs 1292 crores assets, is bizarre. It seems to be a move to appease corporates who have not taken well (the) retreat from farm laws. Adani was making strong moves to control agri markets."

Sources added that the Reserve Bank of India (RBI) has a well-defined framework for such tie-ups between state-owned banks and NBFCs that aims to boost financial inclusion. The SBI has adopted the framework and publicly declared the same on its website as well.

The regulatory framework permits NBFCs to partner with public sector banks. The logic behind such arrangements is that the NBFCs are able to multiply the reach and facilitate the entire loan process including sourcing, documentation, collection and loan servicing, without the bank needing to infuse major additional resources.

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