The rating agency ICRA believes that domestic borrowers will benefit from the proposed start of 'mixed interest rates' in cum-rich loans by RBI. On 9 April, the RBI has shared a draft framework to specify regulatory criteria and guidance for all co-manner systems, as well as to address some prudent issues.

According to the ICRA, according to the current practice, a borrowers are charged with a universal interest rate agreed by the lending partners. The draft instructions proposes to go to a mixed interest rate, which is calculated as an average interest rate received from the interest rates taken by the respective funding institutions, which is weighed by their proportional funding shares.

The ICRA insisted, “If it is implemented, the borrowers may see some decrease in interest rates from the prevailing levels.” Existing rules for co-components do not cover the entire scope of borrowing and sourcing systems, especially NBFC-to-NBFC systems, nor do they cover the non-primary field borrowings (PSL) funding.

The draft framework offered the increased coverage to all asset segments compared to only the priority sector lending in the past. “This draft framework gains prominence because the last few years have seen a strong growth in the size of co-edged transactions,” ICRA said.

In addition, the RBI draft proposed that the loan agreement signed by the borrower with the lenders would have to make an advance disclosure about the separation of the concerned partners and the separation of the responsibilities (eg source, funding and servicing), including the customer interface unit. Any latter change in the customer interface will be made only after taking clear consent from the borrower. Also, RBI's draft proposals indicate strict disclosure criteria for co-comprehensive business.

Co-co-ordinators will have to make some disclosure on their websites. Those revelations include the list of co-manner partners, symbolic limits of mixed interest rates and fees/charges charged from borrowers etc. Currently, banks and NBFC make policies approved by the board and put them on their websites. Under the digital loan guidelines, institutions follow advanced disclosure requirements including details of participation on their websites. Under the proposed co-abolition system, the asset classification will apply at the borrower level.

This means that if any lender organization classifies its risk as SMA/NPA (specialized account or non-performing asset), the same classification will also apply to the risk of other regulatory bodies. According to the current practice, the asset classification in the co-comprehensive system is handled separately by both lender partners. According to the ICRA, this can result in situations where the loan given to a borrower is recognized by one partner as a standard account and the other as SMA/NPA by the other partner. In view of all these backgrounds, the ICRA expects a significant improvement in transparency in the future co-loan sector.