RBI Issues Directions for Co-Lending Arrangements Between Banks and NBFCs to Streamline Joint Lending Practices [Read Notification]

The Reserve Bank of India (RBI) has issued Notification No. RBI/DOR/2025-26/139, DOR.STR.REC.44/13.07.010/2025-26 dated August 6, 2025, announcing a comprehensive framework for Co-Lending Arrangements (CLA).

These directions aim to streamline the process of joint lending between banks and Non-Banking Financial Companies (NBFCs) and ensure better customer protection, transparency, and risk management.

The new rules will come into effect from January 1, 2026, although banks and NBFCs (collectively referred to as Regulated Entities or REs) can adopt them earlier if they choose. Existing co-lending arrangements signed before the effective date will continue to be governed by the existing guidelines.

What is Co-Lending?

Co-lending refers to a joint lending model where one financial institution, usually a bank or NBFC, originates a loan and another regulated entity shares the funding and risk. Under this model, two REs lend to a borrower in a pre-agreed ratio and share the profits and risks accordingly.

Until now, RBI had issued limited guidelines on co-lending, particularly focused on priority sector lending (PSL). With this new notification, the scope of co-lending has been expanded to include both priority and non-priority sector loans.

Who is Covered?

These directions apply to:

• Commercial Banks (except Small Finance Banks, Regional Rural Banks, and Local Area Banks)
• All India Financial Institutions (AIFIs)
• NBFCs, including Housing Finance Companies (HFCs)

Digital lending arrangements are governed separately under the RBI Digital Lending Directions, 2025, but co-lending via digital platforms must also follow these new co-lending rules.

Key Highlights of the Directions

Minimum Loan Share: Each RE must retain at least 10% of every loan in its own books to ensure skin in the game.

Written Agreement: A formal agreement between the partners is mandatory, covering all responsibilities including loan origination, servicing, customer interface, grievance redressal, and revenue sharing.

Blended Interest Rate: Borrowers will be charged a blended interest rate – calculated as the weighted average of the individual interest rates charged by each RE based on their share in the loan.

Transfer of Loans: After a loan is disbursed by the originating RE, the partner RE must record its share in its books within 15 calendar days. If not, the loan remains fully with the originator and can be transferred to another lender only as per the RBI’s Transfer of Loan Exposure rules.

Customer Protection: Borrowers must be clearly told:

• Which RE is their single point of contact
• The terms of the loan
• Fees and interest charged This must be disclosed upfront in the Key Fact Statement (KFS).

Default Loss Guarantee (DLG): The originating RE is allowed to provide a Default Loss Guarantee up to 5% of the outstanding loans under the CLA, but it must comply with RBI’s digital lending norms.

NPA Classification: If one RE categorizes a loan under CLA as a Non-Performing Asset (NPA), the same classification must be adopted by the other RE as well. A real-time sharing mechanism must be in place to ensure timely updates.

Disclosures:

• REs must publish a list of their co-lending partners on their websites.
• They must also disclose aggregate data related to CLAs in their financial statements, including:
• Loan volume
• Average interest rates
• Sectoral distribution
• Performance of co-lent loans
• Details of default loss guarantees, if any

Repealed Guidelines

With the release of this new framework, the previous circular on Co-Lending by Banks and NBFCs to Priority Sector (dated November 5, 2020) has been officially repealed.

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