The Reserve Bank of India (RBI) on Thursday announced a Co-Lending Model (CLM) scheme under which banks can provide loans along with all registered NBFCs, including housing finance companies (HFCs), to priority sector borrowers based on a prior agreement.

"In terms of the CLM, banks are permitted to co-lend with all registered NBFCs (including HFCs) based on a prior agreement. The co-lending banks will take their share of the individual loans on a back-to-back basis in their books," the RBI said in its communication to all banks and NBFCs.

However, NBFCs shall be required to retain a minimum of 20 per cent share of the individual loans on their books, it addded.

The central bank said that based on the feedback received from the stakeholders and to better leverage the respective comparative advantages of the banks and NBFCs in a collaborative effort, it has been decided to provide greater operational flexibility to the lending institutions, while requiring them to conform to the regulatory guidelines on outsourcing, KYC, among others.

The primary focus of the revised scheme, rechristened as thee Co-Lending Model, is to improve the flow of credit to the unserved and underserved sector of the economy and make available funds to the ultimate beneficiary at an affordable cost, considering the lower cost of funds from banks and greater reach of the NBFCs, as per the RBI..