Reserve Bank of India (“RBI”) is actively introducing newer regulatory principles in various fields like digital lending, co-lending between banks and NBFCs and so on. What intrigues the mind are questions like what could be the regulatory intent behind the overturn of the principles – is there a possibility of a common underlying thread guiding these directions. In this blog, we attempt to breakdown the commonalities, underlying regulatory principles, and new aspects of RBI Digital Lending Directions, May 2025 (DL Directions) and RBI Co-Lending Draft Directions, 2025 (CL Directions) (Draft for Comments). While the CL Directions are a draft framework only, in this blog we do a comparative analysis of the two directions for the sake of deep diving into the thought-process of the regulator:

1. Borrower Protection and Transparency:
   • Key Facts Statement (KFS): Both mandate the provision of a KFS to borrowers. The CLA Directions require KFS as per the RBI circular dated April 15, 2024, and the DL Directions also refer to the same circular for providing KFS to the borrowers.
   • Disclosure of Charges: Both emphasize clear disclosure of interest rates, fees, and other charges. The CLA Directions mention that interest rate and fees should be based on contractual agreement and regulatory norms, with the blended interest rate calculation specified. Fees for sourcing/servicing are to be separate and should also be disclosed upfront. The DL Directions also stress disclosure of Annual percentage Rate (APR) and other charges in the KFS.
   • Grievance Redressal: Both outline robust grievance redressal mechanisms. Borrowers can escalate complaints to RBI’s Complaint Management System (CMS) or other designated RBI channels if not resolved by the Regulated Entity (RE) within 30 days.
2. Accountability of Regulated Entities (“RE”s): Both frameworks explicitly state that engaging third parties (like sourcing partners in Co-lending arrangements i.e, CLA or LSPs in Digital Lending i.e, DL) does not absolve the RE of its regulatory obligations and responsibility for the actions of these third parties. The CLA Directions refer to extant outsourcing guidelines for sourcing/servicing arrangements.
3. Due Diligence: REs are required to conduct due diligence on their partners – be it co- lenders/sourcing partners in CLA Directions or Loan Service Providers (“LSP”) s and Default Loss Guarantee (“DLG”) providers in DL Directions.
4. Default Loss Guarantee (DLG): Both Directions permit DLG arrangements up to a cap of 5%. CLA Directions allow permitted REs (sourcing or funding entity) to provide DLG up to 5% of loans outstanding, governed by DL Directions. DL Directions provide a detailed framework (Chapter VI) for DLG, specifying a cap of 5% of the total amount disbursed out of that loan portfolio. The CLA Directions explicitly state that its DLG provisions will be governed mutatis mutandis by the DL Directions issued for digital lending, making the DL Directions’ Chapter VI the comprehensive guide for DLG in both contexts.
5. Reporting to Credit Information Companies (CICs): Both mandate that REs report lending activities to CICs. CLA: Each RE reports its share of the loan account. DL: Any lending through Digital Lending Apps or, DLAs (own or LSP’s) must be reported.
6. Customer Protection: This is paramount. Principles include ensuring transparency in pricing and terms (via KFS, Annual Percentage Rate disclosures), fair treatment, data privacy (especially in DL), and access to effective grievance redressal.
7. Transparency and Fair Practices: This applies to interactions with borrowers (disclosures) and between REs/partners (clear agreements defining roles, responsibilities, and revenue/risk sharing). The DL Directions specifically address concerns about mis-selling, unfair business conduct, and unethical recovery practices.
8. Orderly Growth and Innovation: The RBI encourages innovation in credit delivery but within a regulated framework to prevent unbridled growth that could harm borrowers or the financial system.
9. Level Playing Field and Clarity: By issuing comprehensive guidelines, the RBI aims to provide clarity and ensure that different entities engaging in similar activities are subject to comparable regulatory expectations, where appropriate.
   

What’s New in Co-Lending Arrangements (CLA) Directions, 2025:

• Comprehensive Framework: The most significant change is the move towards a comprehensive, overarching framework for all co-lending arrangements among permitted REs. Previously, guidelines were more specific, for example, the circular on “Co-Lending by Banks and NBFCs to Priority Sector” (November 05, 2020), which is now being proposed to be repealed by CL Directions. These new CL Directions aim to cover CLAs “in general” beyond just priority sector lending or specific RE combinations.
• Applicability to Sourcing Arrangements without Fund Commitment: The provisions mutatis mutandis apply to sourcing of loans by REs from other REs or non-REs under an outsourcing agreement, even without fund/non-fund commitments.
• Detailed Operational Arrangements: Specifics on individual borrower accounts, routing transactions through escrow accounts, and ex-ante Inter Creditor Agreements with joint rights are detailed.
• Regulation of Fees in CLAs: Clear guidelines on how fees/charges to sourcing/servicing entities should be structured, emphasizing arm’s length basis and not involving credit enhancement unless permitted.
• Mutual Consent for Transfer: Transfer of exposures by REs to a third party under CLA requires mutual consent of both (all) REs involved in the CLA.
  

What’s New in Digital Lending (DL) Directions, 2025:

• Framework for LSPs with Multiple Lenders (Para 6): This is a new specific provision effective November 1, 2025. It mandates how LSPs working with multiple REs must present loan offers (digital view of all offers, consistent approach, unbiased display, no dark patterns).
• Directory of Digital Lending Apps (DLA Reporting to CIMS – Para 17): A major new requirement is that REs must report all DLAs (own or LSP’s) they deploy or join to RBI’s Centralised Information Management System (CIMS) portal by June 15, 2025. This aims to create a public directory of verified DLAs.
• Comprehensive DLG Framework (Chapter VI): While DLG was addressed in a June 2023 circular (now repealed), these Directions provide a more exhaustive framework. Non-banking financial companies (NBFCs) have now been directed to exclude guarantees offered by unregulated fintech platforms when provisioning for potential loan losses, ending a practice that had helped reduce their provisioning burden. It appears that RBI’s move reflects a larger message that regulated lenders cannot delegate their core credit risk functions to unregulated partners. NBFC-fintech partnerships can no longer be driven by risk insulation — these collaborations will need to focus on compliance, technological innovation, and robust underwriting frameworks. With the 30 September deadline approaching, both fintechs and NBFCs will now be required to reconsider how they share responsibility, price risk, and build sustainable lending operations. The RBI’s stance, when viewed in conjunction with its recent reduction in risk weights for personal loans to 100 per cent, points toward a more transparent and accountable digital lending ecosystem.
  

In summary, the CLA Directions aim to create a unified regulatory space for diverse co-lending activities, moving beyond specific earlier mandates. The DL Directions significantly strengthen the regulatory framework for digital lending, with a strong emphasis on consumer protection, data governance, transparency in LSP operations, and by creating a verifiable ecosystem of lending apps, while also providing the definitive guidelines on DLG that the CLA framework itself might leverage.

Disclaimer: This blog is for general information and thought-provoking discussion purpose only and is not intended as any legal advice or opinion.