News: Reserve Bank of India has announced the Co-Lending Model (CLM) scheme which is an improvement over the co-origination of loan scheme announced by the RBI in 2018 which seeks to provide greater flexibility to the lending institutions.
Facts:
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CLM Scheme: It aims to improve the flow of credit to the unserved and underserved sector of the economy.
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Features of the scheme:
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Under CLM, banks will be able to co-lend with all registered NBFCs (including HFCs) to the priority sector borrowers based on a prior agreement.
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However, Banks cannot enter into a co-lending arrangement with an NBFC belonging to the promoter group.
- NBFCs shall also be required to retain a minimum of 20% share of the individual loans on their books.
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About Priority Sector lending(PSL):
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It means those sectors which the Government and RBI consider as important for the development of the basic needs of the country and are to be given priority over other sectors.The banks are mandated to encourage the growth of such sectors with adequate and timely credit.
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Under this, Commercial banks including foreign banks are required to mandatorily earmark 40% of the adjusted net bank credit for priority sector lending.Regional rural banks and small finance banks will have to allocate 75% of adjusted net bank credit to PSL.
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Categories:
a) Agriculture
b) Micro, Small and Medium Enterprises
c) Export Credit
d) Education
e) Housing
f) Social Infrastructure
g) Renewable Energy
h) Startups among others.