Fairfax- and Capital Group-backed IIFL Finance is aiming to triple its co-lending to more than Rs 13,000 crore in a year, with the retail focused NBFC seeking to become asset light through partnerships with about half a dozen banks.
The altered strategy follows a de-risking program in the aftermath of the IL&FS crisis.
“IIFL Finance has transformed its business model from being a pure non-bank lender to increasingly a co-lending partner with banks,” said Nirmal Jain, founder IIFL group and managing director, IIFL Finance.
“IIFL Finance has benefited from the co-lending model, where it keeps only about one-fifth of the loan on its own books and four-fifth goes to the bank’s books,” he told ET.
IIFL Finance has ongoing co-lending partnerships with banks including the Central Bank of India, DCB, Union Bank of India, DBS, Canara Bank, Shivalik Bank and Indian Bank for products such as loans for homes, gold, business purposes and microfinance.
Large public sector banks are expected to sign a co-lending deal for which IIFL Finance could well be a partner for a sizable chunk.
“A number of new partnerships, including with the largest public sector banks like SBI, Punjab National Bank, are in works,” said Jain.
“IIFL is confident of accelerating its co-lending program further and tripling it over the next one year,” he said.
IIFL Finance has been able to scale up the co-lending book by 22% in the last quarter itself to over Rs.4500 crore. The growth is over 1800% on a year-on-year basis.
Co-lending takes place when two lenders come together to disburse credit with banks primarily sourcing borrowing clients.
The practice was introduced about a decade ago in India. For non-banks, it helps in terms of raising resources and ready customers with mitigated risk. It aids banks to expand loans faster.
IIFL Finance has an overall loan book of about Rs 55,300 crore. Individual customers from smaller towns and cities mostly borrow from the IIFL Finance.
“IIFL Finance has emerged as the largest co-lending player for retail loans with a network of 3600 branches and a track record of 15 years in retail lending,” said Jain.
Around 32,000 people are working across the branch network.
Banks look for partners with a wide network of branches and their own manpower that are experienced in credit under-writing, collection and loan origination,” Jain said.
Despite massive growth in the banking network since seven decades of independence, millions of small businesses and households in India do not have access to credit from banks. Most small businesses and individuals need loans ranging from Rs. 20,000 to Rs.2 lakhs for which the bank’s conventional way of processing and underwriting credit makes it unviable.
The key need, according to Jain, is to make credit available to these millions of small businesses to help them grow and for low income families for their emergency cash needs.
“The best way to achieve this is the co-lending model.”