Bank of Baroda, U GRO Capital to disburse Rs 1,000 crore loan to MSMEs under co-lending programme

Credit and Finance for MSMEs: U GRO Capital, a BSE-listed small business lending fintech platform, today announced the co-lending partnership with Bank of Baroda for micro, small and medium enterprises (MSME).

Under the co-lending programme Pratham, Bank of Baroda and U GRO will together disburse loans worth Rs 1,000 crore to MSMEs, Shachindra Nath, U GRO Capital’s Managing Director told Financial Express Online. The aim is to dispense the entire amount by the end of this financial year, he added.

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As per the Reserve Bank of India’s (RBI) revised co-lending regulation, 80 per cent of the loan portfolio will be on the bank’s balance sheet and the remaining amount will be provided by the NBFC partner. In this case, U GRO will be responsible to source, underwrite, and disburse the loan from its platform, after which, 80 per cent of the loan will get transferred to Bank of Baroda’s balance sheet. In November last year, the regulator allowed banks and NBFCs to jointly co-originate loans for lending to the priority sector.

MSMEs who have credit risk rating CIBIL MSME Rank from one to five (CMR 1 is the least risky MSME) will be eligible to leverage this facility.

“Since this partnership gives us the ability to lower the cost of liability for MSME customers, the loans are in the price band of 8- 10 per cent,” said Nath.

Through this programme, MSMEs can raise credit from Rs 50 lakh to Rs 2.5 crore with a maximum tenure of 120 months. The loan disbursement started on Tuesday on Bank of Baroda’s 114th Foundation Day.

The programme is accessible to MSMEs across U GRO’s over 200 channel touch points around nine locations in Delhi, Jaipur, Ahmedabad, Pune, Mumbai, Bengaluru, Chennai, Hyderabad, and Kolkata.

On the launch, Nath said, “I firmly believe that the future of NBFCs in India lies in the co-lending partnerships. If this association succeeds it will open up the market for newer models of co-lending.” He explained that co-lending is a long drawn process because when a bank co-lends with an NBFC it has to adopt the latter’s credit policy, understand its methodology of underwriting, and do the required due diligence. Also, technology has to be integrated because once the loan is approved, the portfolio and the repayment have to be bifurcated between the two lenders.

“We believe that forging such partnerships is the way forward and collaborative efforts leveraging individual entities’ expertise are of utmost importance to take co-lending to MSME segment to the next level,” said Vikramaditya Singh Khichi, Executive Director, Bank of Baroda in a statement by U GRO.

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