The Reserve Bank of India (RBI) has introduced a fresh set of regulatory guidelines titled ‘The Reserve Bank of India (Co-Lending Arrangements) Directions, 2025’, to enhance transparency, accountability, and operational clarity in co-lending arrangements among regulated financial institutions.
The new framework will be effective from January 1, 2026, or an earlier date if adopted internally by a regulated entity.
The guidelines apply to commercial banks (excluding small finance banks, local area banks, and regional rural banks), all-India financial institutions, and NBFCs, including housing finance companies.
Digital lending arrangements will continue under the RBI’s Digital Lending Directions, 2025, however, if they involve co-lending, they must also follow the new directions. A co-lending arrangement, as defined by the RBI, is a pre-agreed partnership between an originating regulated entity (RE) and a partner RE to jointly fund loans in a specific proportion.
These may include secured or unsecured loans, with revenue and risk shared accordingly. Each RE must retain at least 10 per cent of each individual loan on its own books.
The loan agreement with the borrower must clearly state which RE will serve as the primary point of contact and explain the roles and responsibilities of both partners.
All relevant details, including interest rates, fees, and grievance redressal mechanisms, must be transparently disclosed in line with the Key Facts Statement requirements.
Borrowers will be charged a blended interest rate, calculated as the weighted average of the interest rates applied by each RE based on their share in the loan. Any change in these rates must be promptly reflected in the blended rate and communicated to the borrower.
Additional fees must be disclosed and included in the loan’s annual percentage rate. Operationally, the partner RE must reflect its share of loans in its books within 15 days of disbursement.
Delays beyond this period will result in the originating RE retaining the loan, which may then only be transferred under the RBI’s loan exposure transfer guidelines.
All loan-related transactions must be routed through a joint escrow account, and each RE must maintain separate borrower accounts.
If either RE classifies a loan as stressed or non-performing, the same classification must apply to the other RE’s exposure. This calls for real-time data sharing between REs.
The originating RE is permitted to offer a default loss guarantee up to 5 per cent of the outstanding loan portfolio, in line with digital lending norms.
All co-lending arrangements must be covered by internal and statutory audits. Regulated entities must publish their list of active co-lending partners on their websites and disclose aggregated data, including loan performance and fees, in their financial statements. With these directions, the RBI has repealed the 2020 circular on co-lending for priority sector lending.
The updated framework aims to formalise co-lending structures and enhance the efficiency of credit delivery through partnerships between banks and NBFCs.
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