Company Policies

Introduction................................................................................................................................2

Scope/ Applicability ....................................................................................................................2

Objective of the Policy................................................................................................................2

Co-Lending Partners..................................................................................................................2

Minimum Retention by the Originator for PSL..........................................................................  3

Assessment of the Co-Lending Partner and Approval................................................................3

Credit Policy and Product parameters...................................................................................... ..3

Agreement to be executed...........................................................................................................3

Co-lending Model (“CLM”) for the PSL Exposures with the Company as the Originator and a

Bank as a Lending Partner .........................................................................................................3

Other Types of Co-Lending Arrangements.................................................................................4

Customer Related Aspects..........................................................................................................5

Selection Criteria of Partners.....................................................................................................5

Selection Criteria of Potential Lending Partners........................................................................5

Selection Criteria of Originator..................................................................................................5

Operational Guidelines..............................................................................................................6

Review of the Policy...................................................................................................................6

Introduction

The Reserve Bank of India (RBI) issued a notification dated November 05, 2020, titled 'Co-Lending by Banks and NBFCs to Priority Sector' (referred to as 'Co-Lending Guidelines'). These guidelines defined the co-lending model and provided instructions primarily for co-origination and co-lending of loans categorized as Priority Sector Loans (PSL) by Scheduled Commercial Banks.
The Co-Lending Model (CLM) prescribed by the RBI facilitates joint lending arrangements between Non-Banking Finance Companies (NBFCs), including Housing Finance Companies (HFCs), and Banks. It aims to create a framework for lenders to collaborate and engage in joint lending in the market. Under CLM, the RBI grants operational flexibility to lending institutions, fostering increased credit flow to underserved sectors of the economy and ensuring affordable access to funds for end beneficiaries.
In alignment with regulatory requirements, Ummeed Housing Finance Private Limited (referred to as 'Company' or 'UMMEED') seeks to adopt this Co-Lending Model Policy ('Policy') with the approval of its Board of Directors.

 Scope/ Applicability

This Policy shall be applicable to all types of co-lending arrangements, which may be entered by the Company with various types of lenders such as Banks and other NBFCs/ HFCs.

Objective of the Policy

The objective of this Policy is to put in place a framework for the Company to enter into the CLM/ colending arrangements, while ensuring compliance with the regulatory requirements.

Co-Lending Framework

UMMEED shall endeavour to enter into Co-Lending Arrangements with the Banks for the PSL exposures. Further, the Company may also enter into similar partnership with the Banks and other NBFCs/ HFCs for co-origination of Housing Loans/ Non-Housing Loans including non-PSL exposures.
It's important to note that while the Co-Lending Model and regulatory framework pertain specifically to PSL transactions, UMMEED's non-PSL exposure will adhere to the RBI Directions on Transfer of Loan Exposure, as outlined in the Directions dated September 24, 2021 (as amended), and as applicable to loan participation/assignment transactions. The key elements of the proposed Co-Lending Framework have been provided in the subsequent paragraphs.

Co-Lending Partners

Co-lending arrangement shall have two lenders for a loan exposure, i.e., Originator and Co- Lending Partner (“Lending Partner”). The Originator shall source the loan and have some share in the total credit exposure taken on the borrower while the Lending Partner shall take majority share of such credit exposure. Depending on specific arrangement with the counter party, UMMEED may take the role of the Originator or the Lending Partner role in the funding proportion, as per the applicable guidelines.

Minimum Retention by the Originator for PSL

For the loans to be categorized as PSL exposures, the Company, as an Originator, shall retain a minimum of 20% share of the individual loans on its books, so that the Co-lending Bank will take their share of the Individual Loans on a back-to-back basis in their books.

Assessment of the Co-Lending Partner and Approval

UMMEED shall evaluate proposed Co-Lending partnerships as per the selection criteria mentioned below in the Paragraphs of the Policy. Thereafter, after seeking and receiving approval of the Asset Liability Management Committee (“ALCO”), the Company shall enter into a prior agreement with a Co-Lending Partner.

Credit Policy and Product parameters 

UMMEED will collaboratively develop the credit policy and identify the product lines to be offered in conjunction with potential co-lending partners.

Agreement to be executed

UMMEED and the Co-Lending Partner will execute either a Master Co-Lending Agreement or a comprehensive agreement. This agreement will encompass various terms and conditions governing the partnership, including but not limited to:
(i) Establishing the overall framework and scope of the partnership.
(ii) Defining the product lines and operating model.
(iii) Specifying geographical areas of operation.
(iv) Assigning responsibilities to co-lending partners, including those related to customer interactions, fair practices, customer service, customer grievance resolution at the originator level, and escalation procedures up to NHB or Banks/NBFC ombudsman levels.
(v) Inclusion of necessary clauses on representations and warranties for which both the Originator and Co-Lending Partner will be responsible concerning the loans allocated to the Lending Partner.
(vi) Framework for loan control, monitoring, reporting, and recovery.
(vii) Addressing issues related to confidentiality, customer data privacy, information preservation, and sharing of relevant records.
(viii) Establishing a common bank escrow account at a designated bank for loan collections, disbursements, and servicing.
(ix) Implementing a suitable business continuity plan at all participating lenders' levels.
(x) Handling aspects related to the creation of security/mortgage and other operational requirements as necessary. (xi) Determining the terms of termination and the agreement's tenor.

Co-lending Model (“CLM”) for the PSL Exposures with the Company as the Originator and a Bank as a Lending Partner

According to the Co-Lending Guidelines, the CLM consists of two sub-models: CLM-1 and CLM-2, based on the disbursement stage and the Lending Partner's discretionary selection. The Master Agreement, established between the Originator and the Lending Partner for implementing the CLM, may require the Lending Partner to either obligatorily include its portion of individual loans originated by the Originator in its records or exercise discretion to reject specific loans following its due diligence process. The Master Agreement, along with other agreements related to the CLM arrangement, will contain specific provisions pertaining to the chosen CLM sub-model:

a) CLM-1 Model:

If the Master Agreement or any other associated agreements include CLM-1 provisions, the Lending Partner shall be under an irrevocable obligation to incorporate its allocated portion of individual loans originated by the Originator into its own financial records. This commitment shall be executed while ensuring strict adherence to the 'Guidelines on Managing Risks and Code of Conduct in Outsourcing of Financial Services' issued by the Reserve Bank of India (RBI), as applicable and updated periodically. Moreover, recognizing that the credit sanction process is not eligible for outsourcing under CLM-1, both the Lending Partner and the Originator shall establish an appropriate mechanism for conducting ex-ante due diligence by the Lending Partner.

b) CLM-2 Model:

Under CLM-2, the Lending Partner retains the discretion to include loans originated by the Originator in its own books as outlined in the Agreement. This arrangement bears similarity to a direct assignment transaction. Consequently, the acquiring Lending Partner shall ensure strict compliance with all stipulations delineated in the 'Reserve Bank of India (Transfer of Loan Exposures) Directions, 2021' (referred to as the 'RBI TLE Directions'), as updated periodically. However, it is noteworthy that the Minimum Holding Period ('MHP') requirement specified in the RBI TLE Directions does not apply to transactions conducted under CLM. The MHP exemption shall solely be applicable in instances where a pre-existing agreement between the Lending Partner and the Originator incorporates a back-to-back basis clause and adheres to all other conditions mandated in the RBI TLE Directions.

 Other Types of Co-Lending Arrangements

(i) The Company is authorized to establish a Co-Lending Arrangement with a Small Finance Bank, NBFC, or any other HFC in accordance with the relevant regulatory prerequisites and within the broader framework delineated in this Policy.
(ii) In the event of a collaborative lending arrangement between banks and the Company for providing loans to borrowers, both parties shall maintain meticulous, separate records documenting their respective loan transactions. To facilitate these financial transactions, a dedicated 'Escrow Account' shall be established with a bank to ensure the strict segregation of their respective funds, thereby mitigating the risk of commingling.
(iii) All requisite protocols, procedures, and terms governing this collaborative lending arrangement shall be comprehensively documented in a formalized written agreement, herein referred to as the 'Master Agreement.' The 'Master Agreement' shall function as the guiding framework dictating the parameters of their collaborative involvement within the co-lending structure.
(iv) Each lender shall be mandated to adhere to asset classification and provisioning requirements in accordance with the pertinent regulatory guidelines that are applicable to each of them. This includes compliance with reporting obligations to Credit Information Companies, as mandated by the applicable regulations, with respect to their respective portions of the loan account.
(v) Any assignment of a loan by one co-lender to a third party shall only be carried out with the prior consent of the other co-lender.
(vi) The Originator, including participating lenders, may choose to seek legal vetting of the Master Agreement to ensure full legal and regulatory compliance.
(vii) For non-PSL exposure, the minimum retention ratio shall be subject to compliance with relevant regulatory requirements, if any.

Customer Related Aspects

(i) The Originator shall be the single point of interface for the customers and shall enter into a loan agreement with the borrower, which shall clearly contain the features of the arrangement and the roles and responsibilities of the Originator and the Lending Partner.
(ii) The Originator shall ensure that all the details of the arrangement shall be disclosed to the customers upfront, and their explicit consent shall be taken.
(iii) The ultimate borrower may be charged an all-inclusive interest rate as may be agreed upon by both the lenders conforming to the extant guidelines applicable to both.
(iv) The Company shall ensure compliance with the applicable Fair Practices Code.
(v) The Originator shall generate a single unified statement of the customer, through appropriate information sharing arrangements with the Lending Partner.
(vi) With regard to grievance redressal, suitable arrangements shall be put in place in accordance with the applicable regulatory/ supervisory instructions.

Selection Criteria of Partners
Selection Criteria of Potential Lending Partners

UMMEED, as an Originator, shall ensure that the Lending Partners selected for the Co-lending business are the Scheduled Commercial Banks registered with the RBI. However, subject to the applicable regulatory requirements from time to time, the Company may also enter into such co-lending arrangement with a Small Finance Bank (“SFB”), NBFC or any other HFC, registered with RBI.
The key criteria of selecting a potential Lending Partner would be to have viablebusiness arrangement to make funds available to the ultimate beneficiary at an affordable cost while ensuring robust growth of the Company’s business in low income and affordable loan segments.

Selection Criteria of Originator

In case UMMEED is acting just as a Lending Partner in the Co-Lending Arrangement, it may opt to enter such an arrangement with NBFCs or other HFCs. However, the Company shall conduct due diligence on the following parameters:
(i) Vintage- Only those originators who have more than 3 years of experience in the similar product lines shall be considered.
(ii) Analysis of the financial statements of the Originator for Profitability, Liquidity, ALM profile and other financial parameters shall be carried out
(iii) The Company shall conduct an assessment of the performance of the Originator’s loan portfolio to ascertain the efficiency of its sourcing quality and collection processes. For this purpose, data pertaining to product mix, delinquency trends, vintage curves, credit loss trends and recovery performance of the portfolio shall be evaluated. (iv) The Company shall obtain feedback as per the credit rating agency reports or other industry players.
(v) The Company shall conduct an assessment of qualitative factors such as reputation of the promoters, funding profile, management quality, corporate governance and historical performance of the portfolio originated.

 Operational Guidelines

Operational modalities of the Co-lending arrangement shall be guided by the Master Agreement, Servicer Agreement, and any other such agreement signed bilaterally between both the parties.

 Review of the Policy

The Policy shall be amended or modified with approval of the Board. The Policy shall be reviewed by the Board on an annual basis. Consequent upon any amendments to the Co- Lending Guidelines or any other relevant regulatory directions or any change in the position of the Company, necessary changes in this Policy shall be incorporated and approved by the Board.
Notwithstanding anything contained in this Policy, in case of any contradiction of the provision of this Policy with any existing legislations, rules, regulations, laws or modification thereof or enactment of a new applicable law, the provisions under such law, legislation, rules, regulation or enactment shall prevail over this Policy.