Background:

As a practice, regulated entities (REs) could enter into a lending arrangement with other REs for extension of credit to the borrowers, subject to compliance with the extant prudential regulations. But there was no regulatory framework for such lending arrangements. On the other hand, co-lending involving banks and NBFCs was governed under specific regulatory framework being prescribed for the purpose of priority sector lending in terms of circular dated November 5, 2020. In view of this background, and to broaden the scope of co-lending, comprehensive revised Directions on co-lending arrangements (CLA) are now being issued with the objective of providing specific regulatory clarity on the permissibility of such arrangements.

Effective Date: January 1, 2026. Existing CLAs (i.e., the lending arrangements executed before the date of issuance of these Directions) and new CLAs entered into prior to the effective date shall be in compliance with the extant regulations.

Repealed: Master Circular on Co-Lending by Banks and NBFCs to Priority Sector dated November, 2020. (“Old Guidelines”)

New Guidelines prescribed:

1. Minimum holding: Each RE under a co-lending arrangement (“CLA”) shall be required to retain a minimum 10 per cent share of the individual loans in its books. This is a shift from the Old Guidelines that prescribed 20%.
2. Suitable credit policy for CLA: The credit policy of a RE shall suitably incorporate provisions relating to CLAs, including the internal limit for the proportion of their lending portfolio under CLAs; target borrower segments; due diligence of the partner entities; customer service and grievance redressal mechanism.
3. Blended Interest Rate: The interest rate and any other fees / charges on the underlying loans charged to the borrower shall be based on the contractual agreement, subject to the regulatory norms applicable to the REs. Specifically, the final interest rate charged to the borrower shall be the blended interest rate which is calculated as an average rate of interest derived from the interest rates charged by respective REs, as per their internal lending policies and risk profile of the same or similar borrower, weighted by the proportionate funding share of concerned REs under CLA.
4. 15 days’ time for transfer of exposure to co-lending partner’s books: The CLA shall ensure that the respective shares of the REs are reflected in the books of both REs without delay after disbursement by the originating RE to the borrower, in any case not later than 15 calendar days from the date of disbursement. Originating RE shall also ensure that it transfers the loan under CLA only to the partner RE, as per the ex-ante agreement and as specified in the KFS at the time of sanction of loan. If the originating RE is unable to transfer the share of the exposure to the partner RE under CLA within 15 calendar days for any reason, then the loan/s shall remain on the books of the originating RE and can be transferred to other eligible lenders only under the provisions of Master Directions – Transfer of Loan Exposure, 2021 (MD-TLE).
5. Operational aspects: Each RE shall maintain a borrower’s account individually for its respective share. All transactions (disbursements / repayments) between the REs, as well as with the borrower, shall be routed through an escrow account maintained with a bank (which could also be one of the REs involved in CLA). The agreement shall clearly specify the manner of appropriation between the originating and partner REs.
6. Audit: The loans under the CLA shall be included in the scope of internal/ statutory audit in each RE to ensure adherence to their respective internal guidelines, terms of the agreement and applicable regulatory requirements.
7. BCP: REs shall implement a business continuity plan to ensure uninterrupted service to their borrowers till repayment of the loans, in the event of termination of CLA between the REs.
8. KYC: A RE involved under CLA shall comply with the prescribed norms under the Master Direction – Know Your Customer (KYC) Direction, 2016 as amended from time to time. Partner RE may rely upon the originating RE for “Customer Identification Process” as per the provisions of the said Master Directions on KYC.
9. Fair Practices Code: REs shall be guided by the fair practice code and grievance redressal mechanism as applicable to them.
10. Reporting to CICs: Each RE shall adhere to the extant requirements of reporting to CICs for their share of the loan account.
11. DLG ceiling: Originating RE may provide default loss guarantee up to five per cent of loans outstanding in respect of loans under CLA. This cap is in line with the RBI’s Master Directions on Digital Lending, 2025 that prescribes similar limits.
12. Uniform Asset Classification: If either of the REs classifies its exposure to a borrower under CLA as SMA / NPA on account of default in the CLA exposure, the same classification shall be applicable to the exposure of the other RE to the borrower under CLA. REs shall put in place a robust mechanism for sharing relevant information in this regard on a near-real time basis, and in any case latest by end of the next working day.
13. Consent of co-lending partners for transfer of loans: Any subsequent transfer of loan exposures originated under CLA to third parties, or any inter-se transfer of such loan exposures between REs, shall be strictly in compliance with the provisions of RBI Master Directions on Transfer of Loan Exposures. Such transfers to a third party, however, can be done only with the mutual consent of both the originating and partner REs.
14. Disclosures: In addition to the applicable disclosure requirements under extant regulations, REs shall also prominently disclose on their website, a list of all active CLA partners. REs shall also make appropriate disclosures in their financial statements, under ‘Notes to Accounts’, relating to necessary details of CLAs on an aggregate basis.

Important clauses to be captured in the Co-lending agreements:

The agreement to be entered between the CLA partners shall include:

• Detailed terms and conditions of the arrangement
• The criteria for selection of borrowers
• Specific product lines and areas of operation
• Fees payable for lending services, if any
• Provisions related to segregation of responsibilities
• Time frame for exchanging critical information
• Customer interface and customer protection issues and grievance redressal mechanism

The loan agreement with the borrower shall include:

• Upfront disclosure regarding the segregation of the roles and responsibilities (such as sourcing, and servicing) of concerned REs, including clear identification of the entity being the single point of interface with the customer.
• Any subsequent change in customer interface shall only be done after prior intimation to the borrower.
• The loan-agreement shall also appropriately disclose suitable provisions related to customer protection, and grievance redressal mechanism.
• All required details of CLA shall be disclosed appropriately to the concerned borrower as laid down under RBI Circular on ‘Key Facts Statement (KFS) for Loans & Advances’ dated April 15, 2024 as amended from time to time.