New Delhi, May 30 (KNN) In a move aimed at streamlining the co-lending landscape and promoting credit access for Micro, Small, and Medium Enterprises (MSMEs), the Department of Financial Services (DFS) is forming a high-level committee with the State Bank of India at the helm.

The primary objective of this committee is to thoroughly examine and address prevailing issues related to co-lending practices, while simultaneously devising strategies to bolster MSME credit flow and potentially curb the accelerated growth witnessed in certain segments of consumer lending facilitated through co-lending arrangements, reported BL.

According to sources familiar with the matter, the committee will comprise representatives fr0m three banks and three non-banking financial companies (NBFCs), working in close collaboration with the Reserve Bank of India (RBI) and the DFS.

The State Bank of India, being the country's largest lender and a significant player in the co-lending space, will spearhead the process of selecting the committee members.

One of the anticipated members is UGro Capital, an NBFC with a strong focus on the MSME sector, although the company has refrained fr0m commenting on the development thus far.

The committee's primary responsibilities will include conducting comprehensive discussions, identifying bottlenecks, and ultimately presenting a detailed report to the RBI and DFS.

This report will outline a proposed framework to facilitate the growth of co-lending, with a particular emphasis on enhancing credit access for MSMEs. Additionally, the committee will propose regulatory and policy changes or solutions aimed at addressing the identified challenges.

Industry experts highlight that while co-lending was initially conceptualised to cater to priority sector lending, including MSMEs, recent trends have shown a substantial portion of co-lending being directed towards consumer loans.

This has prompted concerns fr0m regulators, who have cautioned certain banks about the potential risks associated with such practices, including the deterioration of portfolio quality.

According to a recent report by CRISIL, the co-lending asset under management (AUM) is estimated to have reached nearly Rs 1 lakh crore over the past five years since the inception of the co-lending model.

Personal loans account for 34 per cent of the co-lending book, followed by housing loans at 20 per cent, while unsecured MSME and gold loans each comprise 13 per cent. Secured MSME loans (including loan against property) and vehicle loans constitute the remaining 20 per cent.

CRISIL anticipates that the co-lending segment will continue to grow at a rate of 35-40 per cent in the medium term, underscoring the importance of establishing a robust regulatory framework to ensure the sustainable and responsible growth of this lending model.

(KNN Bureau)