SBI-Led Committee on Co-Lending to Focus on Boosting MSME Credit

By Doraj Mandal --
Monday, 03 Jun, 2024

The Department of Financial Services (DFS) has formed a committee led by the State Bank of India (SBI), to address co-lending issues, boost MSME credit, and manage the rapid growth in consumer loans.

According to a source, "The Finance Ministry has established a committee comprising three banks and three NBFCs to address co-lending issues and enhance volumes, who will subsequently present a report to RBI and DFS proposing a framework to promote exponential growth in co-lending.”

SBI, as the country's largest lender and a major player in co-lending, will select the committee members. MSME-focused NBFC UGro Capital is expected to be one of the members, although the company has not commented.

Increased co-lending aims to boost MSME credit and reduce NBFCs’ liquidity needs by promoting an asset-light model. This is significant as the RBI prefers NBFCs to maintain smaller balance sheets. The initiative also seeks to control the rapid growth in co-lending for consumer loans. Recently, the regulator cautioned banks to monitor their co-lending partnerships and portfolio quality.

"Co-lending was intended for priority sector loans (PSLs), including MSMEs. However, some banks extended this to non-PSLs, leading to consumer loans comprising 65-75% of total co-lending. The focus should remain on PSLs, and the regulator may eventually limit other segments," another source said.

A recent report by CRISIL indicated that co-lending assets under management is nearing ₹1-lakh crore in five years. Personal loans constitute 34% of this, housing loans 20%, unsecured MSME and gold loans 13?ch, and secured MSME and vehicle loans the remaining 20%. The agency expects CRISIL projects co-lending to grow at 35-40% in the medium term.

SBI-Led Committee on Co-Lending to Focus on Boosting MSME Credit. The Department of Financial Services (DFS) has formed a committee led by the State Bank of India (SBI), to address co-lending issues, boost MSME credit, and manage the rapid growth in consumer loans.

According to a source, "The Finance Ministry has established a committee comprising three banks and three NBFCs to address co-lending issues and enhance volumes, who will subsequently present a report to RBI and DFS proposing a framework to promote exponential growth in co-lending.”

SBI, as the country's largest lender and a major player in co-lending, will select the committee members. MSME-focused NBFC UGro Capital is expected to be one of the members, although the company has not commented.

Increased co-lending aims to boost MSME credit and reduce NBFCs’ liquidity needs by promoting an asset-light model. This is significant as the RBI prefers NBFCs to maintain smaller balance sheets. The initiative also seeks to control the rapid growth in co-lending for consumer loans. Recently, the regulator cautioned banks to monitor their co-lending partnerships and portfolio quality.

"Co-lending was intended for priority sector loans (PSLs), including MSMEs. However, some banks extended this to non-PSLs, leading to consumer loans comprising 65-75% of total co-lending. The focus should remain on PSLs, and the regulator may eventually limit other segments," another source said.

A recent report by CRISIL indicated that co-lending assets under management is nearing ₹1-lakh crore in five years. Personal loans constitute 34% of this, housing loans 20%, unsecured MSME and gold loans 13?ch, and secured MSME and vehicle loans the remaining 20%. The agency expects CRISIL projects co-lending to grow at 35-40% in the medium term.