Co-origination and co-lending generally refer to similar processes where two financial institutions (typically a bank and an NBFC) collaborate to issue loans. In this setup, both banks (lenders) and NBFCs (originators) share the risk in a predetermined ratio (typically 80:20). [Specifically, 80% of the loan is with the lender, and a minimum of 20% is with the originator (https://www.go-yubi.com/blog/what-is-co-origination-and-how-does-the-co-origination-model-work/)
- The primary goal of co-origination is to provide more funds to priority sectors, such as micro-finance and MSME lending.
- It allows NBFCs to overcome funding challenges, expand their assets under management, and focus on client servicing, while banks benefit from diversifying their loan portfolio and meeting priority sector lending requirements.
The net loan origination appears muted across all buckets except for the micro enterprise loan-book. Here could be some potential reasons:
- Market Conditions: Economic factors may impact borrower creditworthiness and demand for loans.
- Lender Strategies: Banks and NBFCs may strategically focus on specific segments, affecting overall origination.
- Tighter Lending Standards: Lenders might apply stricter criteria due to risk considerations.
- Liquidity Constraints: The NBFC sector faced liquidity challenges, impacting origination
Interest Rates: Changes in interest rates can impact loan demand, with higher rates typically leading to reduced borrowing. But considering the recent FOMC meeting it looks like there are good chances of a rate cut by the US Fed in the month of September which might take care of this problem eventually.
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