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Repealed: Master Circular on Co-Lending by Banks and NBFCs to Priority Sector dated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:
- 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%. - 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. - 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 - 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 originatingRE is unable to transfer the share of the exposure to the partner RE under CLA within15 calendar days for any reason, then the loan/s shall remain on the books of theoriginating RE and can be transferred to other eligible lenders only under the provisions of Master Directions – Transfer of Loan Exposure, 2021 (MD-TLE). 25. - 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. - 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. - 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. - 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. - Fair Practices Code: REs shall be guided by the fair practice code and grievance
redressal mechanism as applicable to them - Reporting to CICs: Each RE shall adhere to the extant requirements of reporting to
CICs for their share of the loan account - 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. - 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. - 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 - 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 :
i) detailed terms and conditions of the arrangement;
ii)the criteria for selection of borrowers;
iii)specific product lines and areas of operation
iv) fees payable for lending services, if any;
v) provisions related to segregation of responsibilities;
vi) time frame for exchanging critical information;
vii) customer interface and customer protection issues and grievance redressal
mechanism.
The loan agreement with the borrower shall include:
i) 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.
ii) Any subsequent change in customer interface shall only be done after prior
intimation to the borrower.
iii) The loan-agreement shall also appropriately disclose suitable provisions related to
customer protection, and grievance redressal mechanism.
iv) 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.
