The overall assets under management through the co-lending model is nearing Rs 1 lakh crore in the last five years, a domestic rating agency said on Monday.

However, regulatory curbs on unsecured lending are expected to result in a decrease in the share of personal loans -- the highest contributor to the co-lending model -- going forward, the report by Crisil Ratings said.

Personal loans occupy a third of the overall AUM at present, and the growth in these loans is likely to be impacted because of the 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 per cent from 100 per cent earlier will moderate the growth for unsecured loans to 25-35 per cent in FY25 from an estimated growth of 35 per cent 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," its Director Malvika Bhotika said.

Over the medium term, the co-lending model will witness a growth of 35-40 per cent 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 per cent and 20 per cent, 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.

Except for the headline, this story has not been edited by The Telegraph Online staff and has been published from a syndicated feed.