Mahindra Finance has signed a strategic co-lending agreement with the State Bank of India (SBI) to provide affordable credit solutions, especially in rural and semi-urban areas.
Under the co-lending model, Mahindra Finance will originate and process loans as per the co-lending guidelines. SBI will provide funding of up to 80% of the loan amount, while Mahindra Finance will fund the remaining portion. The partners aim to enhance credit flow to unserved and underserved sectors to boost priority sector lending.
SBI has several co-lending agreements with firms such as Shriram Transport Finance and L&T Finance. In September 2022, SBI and Shriram Transport Finance signed a deal worth ₹15,000 crores to finance commercial vehicles. In May 2022, SBI and L&T Finance joined hands to provide loans worth ₹5,000 crores to farmers for buying tractors and farm equipment.
The co-lending model allows banks like SBI to leverage the wider reach of NBFCs like Mahindra Finance, especially in rural areas. It also helps NBFCs to access capital at lower costs from banks. This model is a win-win for both sets of institutions and their customers. Banks can achieve priority sector lending targets, while NBFCs can expand their customer base. Most importantly, customers get easy access to formal credit at reasonable interest rates.
Mahindra Finance, with its extensive rural presence and domain expertise in vehicle and tractor financing, is well positioned to complement SBI’s funding heft. Mahindra Finance MD Ramesh Iyer said the tie-up would ensure wider outreach and better interest rates for customers. SBI sees co-lending as an opportunity to expand customer base and boost credit offtake.
The RBI has been strongly promoting co-lending between banks and NBFCs to improve credit flow to productive sectors of the economy. It recently allowed co-lending to priority sectors like agriculture, micro and small enterprises, housing and education. With this latest deal, Mahindra Finance has joined the growing list of NBFCs partnering with banks to increase finance penetration across India.
SBI is the biggest and most influential bank in India with a huge presence, customer base and transactions network across the country.