RBI has, by way of the Reserve Bank of India (Co-Lending Arrangements) Directions, 2025 (‘Co-Lending Directions’), introduced a comprehensive regulatory framework governing co-lending arrangements (‘CLAs’) between regulated entities (‘RBI REs’).

The Co-Lending Directions are applicable to commercial banks (excluding small finance banks, local area banks and regional rural banks), All-India financial institutions (‘AIFIs’), and Non-Banking Financial Companies (‘NBFCs’), including Housing Finance Companies (HFCs) and supersede the earlier Circular on Co-Lending by Banks and NBFCs to Priority Sector dated November 5, 2020 (‘2020 Circular’). The Co-Lending Directions will come into force from January 1, 2026, or such earlier date as an RBI RE may decide based on its internal policy. However, existing CLAs and new CLAs entered into prior to such date will continue to be governed by the 2020 Circular.

 The Co-Lending Directions continue several provisions of the 2020 Circular and introduce significant changes to the extant co-lending framework, of which the key changes are:

i.    Minimum Retention: Under the 2020 Circular, NBFCs were required to retain a minimum 20% share of each individual loan on their books – this has been reduced to 10% for each RE. In addition, unlike the 2020 Circular which permitted banks to accept or refuse specific loans originated by an NBFC (subject to direct assignment rules), the Co-Lending Directions now require the partner RBI RE to provide an irrevocable commitment to take its agreed share;

ii.   Blended Pricing: Borrowers must now be charged a blended interest rate, computed as the weighted average of the lending rates of the partner RBI REs, in proportion to their respective funding shares;

iii.  Operational Timelines: The partner RBI RE is required to record its share of each loan on its books within the prescribed timeline, which if not achieved leads to the originating RBI RE either retaining the exposure or transferring it in accordance with applicable regulations;

iv.    Default Loss Guarantee: The originating RBI RE is permitted to extend a default loss guarantee of up to five percent of the outstanding loan portfolio under the CLA, subject to the RBI’s digital lending norms;

v.     Asset Classification: Asset classification under the CLA must now be undertaken at the borrower level and classification of an exposure as stressed by one RBI RE will lead to the same classification across all co-lenders. However, each RBI RE will continue to maintain separate books and follow its own provisioning norms in respect of a given borrower; and

vi.    Information Sharing and Reporting: The Co-Lending Directions mandate near real-time information sharing between co-lenders, with all relevant information to be exchanged no later than the end of the next working day. This is intended to ensure timely and consistent reporting to credit information companies and to facilitate coordinated asset classification and provisioning.