Co-lending Model: GST Exemption Plea Rejected
Why in the news
A recommendation by an SBI-led panel to drop the 18% GST on co-lending between commercial banks and NBFCs was turned down by the Department of Revenue.
Reasons
- SBI has been asked by the Department of Financial Services to form a co-lending committee on the model’s issues.
- A fitment committee found the bank-NBFC agreements too vague for an exemption decision.
About co-lending
- Two or more lenders pool funds for one borrower; the lead lender is usually a bank, the co-lender an NBFC, bank or fintech.
- Lead lender originates and appraises the loan; co-lender funds part; risk and reward are shared.
- RBI’s model pairs banks’ cheap capital with NBFC reach, including housing finance companies.
- NBFCs hold at least 20% of each loan.
Benefits
- Wider credit access in underserved areas.
- More efficient lending using partners’ strengths.
Growth outlook
| Source | Projection |
|---|---|
| Crisil Ratings | NBFC co-lending portfolios at ₹1 trillion by June 2024; 35-40% annual growth |
| PwC India | ₹47,000-52,000 crore in FY23, possibly fivefold to ₹22.5 trillion in five years |
Exam angle
- GST rate: 18%.
- RBI began co-lending for MSMEs in 2020.