Yes Bank and Indiabulls Housing Finance have entered into a co-lending agreement for home loans. The two finance giants, Yes Bank, and Indiabulls Housing Finance have come in a partnership to synergize capabilities and enhance retail experiences for home loan customers.
On Wednesday, the two finance giants said in a joint statement; the partnership aims at synergising capabilities to provide an efficient and seamless experience to retail home loan customers. The statement also adds that the Reserve Bank of India’s co-lending framework provides a collaboration tool for both banks and non-bank financiers. Which will provide a low-cost funding model of a bank and the cost-efficient sourcing and servicing capabilities of a non-bank.
In November 2020, the Reserve Bank of India came up with guidelines on co-origination of loans or co-lending of loans. Under this framework, banks and NBFCs (non-banking finance companies) can lend to priority sectors or economically weaker sections. The main idea behind the collaboration framework is to encourage credit flow to this segment.
What is the co-lending model (CLM)?
In the co-lending model (CLM), banks have the permission to co-lend with all registered NBFCs (including HFCs). However, the loan will be based on a prior agreement between the banks and NBFCs. Moreover, the co-lending banks will be taking their share of the individual loans on a back-to-back basis in their books.
How do the two financers approach this partnership?
According to Rajan Pental, Global Head, Retail Banking, Yes Bank, The partnership is in line with Yes Bank’s strategy of expanding its retail franchise through a mix of organic and partnership-led origination models. The bank is eyeing forward to further build a profitable and quality home loan portfolio through this partnership.
Gagan Banga, Vice Chairman and CEO, Indiabulls Housing Finance expressed his optimism for the partnership. According to him, they can now leverage Yes Bank’s deposit-led franchise and complement that with the technology-led distribution of Indiabulls. Thus, it will help in providing efficient solutions around home loans to a wide gamut of customers across geographies, ticket sizes and yield spectrum. The collaboration will provide balance-sheet light growth and profitability to the two firms.
How will borrowers benefit?
From the borrower’s point of view, the idea makes a lot of sense as it will make the process faster. NBFCs process loan applications much quicker than banks. Also, NBFCs have a better reach among borrowers than the banks in many geographies. NBFCs can get bigger and top-rated borrowers on their books through this arrangement. Whereas it wouldn’t have been possible otherwise, according to a former SBI senior executive.
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