The co-lending model has attracted assets under management (AUM) worth almost Rs 1 lakh crore in the last five years, according to Crisil Ratings.

 However, regulatory curbs on unsecured lending are expected to result in a decrease in the share of personal loans going forward, the domestic rating agency said on Monday.

 Incidentally, personal loans is the highest contributor to the co-lending model. It has a share of one-third in the overall AUM.

The growth in these loans is likely to be impacted because of the Reserve Bank of India’s (RBI's) measures adopted last year, it said.

"While co-lending books for all asset classes will grow, the pace of growth for personal loans is expected to be slower than that seen in the recent past," the agency said.

The revision in the risk weight of unsecured consumer credit to 125% from 100% earlier will moderate the growth for unsecured loans to 25-35% in FY25 from an estimated growth of 35% in FY24.

"With recalibration in growth of personal loans following increase in risk weights, the share of personal loan in the co-lending book could decline in FY25, and that of MSME and home loans should go up," Crisil Rating director Malvika Bhotika said.

Over the medium term, the co-lending model will witness a growth of 35-40% on the back of higher interest in the avenue from both banks and non-bank lenders.

Calling it a win-win model that allows for sharing of risks and rewards, the agency's senior director Ajit Velonie said, "For NBFCs, particularly for mid-sized and smaller ones, it enables access to bank funding as well as diversification in funding avenues."

Additionally, NBFCs have the opportunity for growing in a capital efficient manner, while for banks, meeting the priority sector lending requirements and hand, access to niche customers and geographies is a draw, Velonie said.

Going forward, the partners in such tie-ups may increase their focus on other asset classes such as loans to micro, small and medium enterprises (MSME) and home loans, given higher risk weights for personal loans, the agency said, adding that the two account for 13% and 20%, respectively, of the AUM currently.

While sustenance of asset quality will be the key to long-term success of the co-lending business model, the manner in which regulations governing co-lending evolve will also bear watching, the agency added.