Central Bank of India finalizes colending framework, to take effect from January 2026.
New Co-Lending Rules from the Reserve Bank of India: A Step Towards Transparency and Risk Management
The Reserve Bank of India (RBI) has finalized new rules for co-lending arrangements (CLAs) between banks and non-bank financial companies (NBFCs), effective January 1, 2026. These rules establish a unified regulatory framework to promote transparency, risk-sharing, and prudent lending in joint loans originated by regulated entities (REs), including banks and NBFCs.
Key Features of the RBI Co-Lending Directions, 2025:
- Mandatory 10% Loan Retention: Each participating lender in a co-lending partnership must retain at least 10% of the individual loan amount on its books.
- Expanded Scope of Partnerships: The new rules broaden the scope to allow co-lending between all regulated entities.
- Ex-Ante Co-Lending Agreements: Co-lenders must enter into formal, documented agreements before loan disbursement.
- Loan Origination and Transfer Timeline: The loan originator must transfer the co-lent portion to the partner lender within 15 days of origination.
- Unified Lending Framework: Joint management of activities including customer acquisition, underwriting, pricing, servicing, monitoring, and recovery is allowed.
- Interest Rate and Loan Documentation: Borrowers will be charged a blended interest rate. Loan agreements must disclose upfront the roles and responsibilities of each party.
- Escrow Account Requirement: All funds disbursed and repayments between the co-lenders and borrower must pass through an escrow account maintained with a bank.
- Digital Lending Regulation Continuity: Digital lending platforms remain governed by the RBI’s Digital Lending Directions, 2025.
- Exclusions: These Directions do not apply to loans sanctioned under multiple banking, consortium lending, or syndication arrangements.
Implications of the New Rules:
- The 10% minimum retention will incentivize prudent lending by ensuring all co-lenders share credit risk, reducing moral hazard.
- Expanding co-lending beyond priority sector loans and enabling a broader mix of lenders improves credit availability and supports financial inclusion.
- Clear regulatory guidelines and mandatory upfront disclosures enhance borrower protection and lending transparency.
- Unified documentation and escrow account requirements streamline operations, strengthen oversight, and minimize disputes between co-lenders.
- The flexibility for early adoption by regulated entities allows quicker market adaptation and experimentation before the mandatory compliance date.
- By integrating co-lending with digital lending regulations where applicable, RBI aims to safeguard data privacy, consumer rights, and fair practices in emergent lending models.
However, it is important to note that the final rules for co-lending arrangements do not include provisions that would allow lenders to offer protection against losses due to borrower default to their partner lenders. The RBI has clarified that in co-lending arrangements, lenders will not be able to offer guarantees that would shield the partner lender from the consequences of a borrower's default.
In essence, RBI’s 2025 co-lending framework is designed to foster robust collaboration between banks and NBFCs, promote disciplined risk-sharing, broaden the credit footprint, and uphold transparency and borrower welfare across joint lending products effective January 1, 2026. The move aims to provide regulatory clarity and strengthen risk-sharing mechanisms in joint lending portfolios.
- As a result of these new co-lending rules, banks and non-bank financial companies (NBFCs) will be required to retain at least 10% of the loan amount for each joint loan originated, as part of a unified regulatory framework aimed at promoting risk-sharing and prudent lending.
- The risk management strategies set by the Reserve Bank of India (RBI) in its co-lending framework may have a significant impact on the banking-and-insurance industry, given the emphasis on transparency, borrower protection, and loan documentation.
- With the new co-lending rules enforcing digital lending regulation continuity, there are implications for the digital finance sector, as data privacy, consumer rights, and fair practices in emergent lending models are prioritized.
- In the business and finance sectors, the RBI's co-lending framework may stimulate growth and financial inclusion by increasing credit availability, allowing a broader mix of lenders, and fostering robust collaboration between banks and NBFCs.
