Economics · Banking and Financial Regulations
A large private sector bank plans to expand in the rural housing segment via a Co-Lending Arrangement with a specialized Housing Finance Company (HFC), which is an 'Upper Layer' NBFC. The bank provides 90% of the funding, and the agreement includes a clause where the HFC provides a 3% default guarantee to the bank. Based on the current RBI norms, evaluate the compliance of this arrangement.
Verified Solution4 OptionsUpdated: October 2026👁️1 View
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- 1All aspects are compliant; the HFC is eligible, the share meets the retention rule, and the guarantee is under the 5% cap.
- 2Compliant except for the funding share; the bank cannot provide more than 80% of the funds in a co-lending model.
- 3Ineligible because 'Upper Layer' NBFCs are not permitted to engage in co-lending for housing.
- 4Compliant except for the guarantee; no default guarantees are allowed between co-lending partners under the standard co-lending model framework.✓
Correct answer
Compliant except for the guarantee; no default guarantees are allowed between co-lending partners under the standard co-lending model framework.
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