Overview of RBI (Co-Lending Arrangements) Directions, 2025

On 6-7-2025, the Reserve Bank of India (‘RBI’) notified the ‘RBI (Co-Lending Arrangements) Directions, 2025’, to establish a unified regulatory framework for banks and Non-Banking Financial Companies (‘NBFCs’) to jointly lend through structured co-lending arrangements. These Directions aim to enhance transparency, ensure prudent risk-sharing, and strengthen borrower protection in collaborative lending models. These Directions shall come into force from 1-1-2026, or on any earlier date as determined by the Regulated Entities (‘REs’) based on their internal policies.

Key highlights of Co-Lending Directions:

1. Under the new framework, co-lending arrangements (‘CLAs’) will be governed through ex-ante agreements between an originating Regulated Entity (RE) and a partner RE. These agreements will define the joint funding of loans, secured or unsecured, in predetermined proportions, with clearly articulated terms for revenue sharing, risk allocation, and operational responsibilities.
2. A CLA refers to a documented arrangement between an originating RE and a partner RE to jointly finance a portfolio of loans in agreed proportions. The agreement will be executed prior to loan disbursement and will be required to include provisions for revenue sharing, risk participation, and compliance with applicable regulatory norms.
3. Lending services under CLA encompass customer acquisition, underwriting, pricing, servicing, monitoring, and recovery, which may be performed by the REs or their agents, subject to the RBI’s Master Direction on Outsourcing of Financial Services. All other terms used in the Directions carry the meanings assigned under applicable laws or commercial usage.
4. The Directions apply to:
   • Commercial banks (excluding Small Finance Banks, Local Area Banks, and Regional Rural Banks)
   • All-India Financial Institutions
   • NBFCs, including Housing Finance Companies.
5. These Directions will not be applicable to loans sanctioned under multiple banking, consortium lending, or syndication.
6. Digital lending arrangements will remain governed by the RBI’s Digital Lending Directions, 2025, but if digital platforms are used for co-lending, the CLA Directions also apply.
7. Each RE will be required to retain at least 10% of every individual loan on its own books, ensuring both entities maintain a financial stake in the exposure. Additionally, REs is required to update their credit policies to incorporate CLA-related provisions, including internal exposure limits, borrower segmentation strategies, partner due diligence protocols, and grievance redressal mechanisms.
8. The CLA agreement will outline borrower selection criteria, product lines, operational areas, fee structures, segregation of responsibilities, timelines for information exchange, and customer protection protocols.
9. The loan agreement signed with the borrower will clearly identify the single point of contact for customer service and disclose the roles and responsibilities of each RE. Any change in customer interface will be communicated to the borrower in advance. Additionally, all relevant details should be disclosed in accordance with the RBI’s Key Facts Statement (‘KFS’) circular dated 15-4-2024.
10. Under the Directions, borrowers will be charged a blended interest rate based on the weighted average of rates from each RE, with any changes promptly communicated. All fees will be included in the Annual Percentage Rate (‘APR’) and disclosed in the KFS. Service fees will be required to follow objective criteria and exclude credit enhancement or default guarantees unless permitted.
11. The partner RE needs to commit to its loan share upfront, with both REs recording their portions within 15 days. If not transferred, the loan remains with the originating RE and can only be transferred in accordance with RBI’s loan transfer guidelines.
12. Separate borrower accounts are required, and all transactions can go through an escrow account. The agreement will define fund allocation clearly.
13. Loans under CLA will be audited and supported by a business continuity plan. KYC norms apply, with the partner RE allowed to rely on the originating RE. Fair practices and grievance mechanisms should be upheld.
14. Originating REs can offer a default loss guarantee (‘DLG’) up to 5% of outstanding loans, subject to digital lending norms. Asset classification is borrower-level, if one RE flags a borrower as Special Mention Account or Non-Performing Asset, the other will do the same. Classification data will be shared promptly.
15. Loan transfers require mutual consent and can follow RBI’s transfer rules. Each RE will be required to report its share to Credit Information Companies (‘CICs’) individually, as per the Credit Information Companies (Regulation) Act, 2005.
16. Disclosure norms are stringent, requiring REs to list all active CLA partners on their websites and include aggregate CLA data in their financial statements under ‘Notes to Accounts.’
17. These disclosures will cover loan volumes, interest rates, fees, sectoral distribution, performance, and DLG details, reported quarterly or annually as applicable.
18. With these Directions, RBI has repealed its earlier circular on co-lending to the priority sector dated 5-11-2020, and the existing arrangements remain valid until aligned with the new framework.
19. By mandating clear contractual terms, transparent pricing, robust operational protocols, and borrower-centric disclosures, it foster responsible collaboration between financial institutions while safeguarding the interests of borrowers and maintaining systemic stability.
20. Overall, the Directions aim to formalize co-lending, ensure transparency, and protect borrowers while strengthening collaboration between financial institutions.