International Journal of Research in Finance and Management
2018, Vol. 1, Issue 2
Co-origination of loans in India: Impact and analysis
‘Co-origination of loan’ is a scheme based on joint participation by Banks and NBFCs which appears to bring about win-win situation for all parties concerned namely; Banks & NBFCs on the one hand and Priority sector borrowers on the other hand. This was all the more warranted when economic growth rate has declined below 5%, credit rate and exports have also gone down drastically whereas inflation and unemployment are on the rise. Global scenario is gloomy and therefore not supportive in any manner to spur growth, demand for consumption and exports. However, Indian economy is witnessing both cyclical and structural forces working against accelerating the growth. Even savings and investment growth have moderated to a large extent. In such a scenario, even within the priority sector, MSMEs have great potential to grow faster even in the short run as compared to large scale enterprises. In fact, it is imperative for the Government, Banks and NBFCs to collaborate with each other so as to promote growth in MSME sector which in the process would help in creating more employment for the masses leading to increased purchasing power in the hands of people while containing inflation. In the above backdrop and to achieve country's aspirations for a double-digit growth, it is crucial that the potential of MSME sector is optimised. But, ease of credit access to MSME’s is difficult as, PSB’s which are offering credit at lower prices are not able to timely deliver credit and NBFC’s which are quick in delivery of credit, are offering the same at high rates and liquidity crunch. This in turn has eroded the profitability of MSMEs and impaired their growth. In order to mitigate this imbalance, RBI has come up with the concept of ‘co-origination’ in September, 2018. In this concept, NBFCs and Banks share the percentage of the loan provided with a pricing blend by which the effective RoI is reasonable for the borrower. In this paper we will study the impact of ‘co-origination ‘on Banks/Financial Institutions, borrowers and economy as a whole.