On August 06, 2025, the Reserve Bank of India (“RBI”) released the Reserve Bank of India (Co-Lending Arrangements) Directions, 2025 (“Co-Lending Directions”). The Co-Lending Directions apply to Commercial Banks (excluding Small Finance Banks, Local Area Banks and Regional Rural Banks); All-India Financial Institutions; and, Non-Banking Financial Companies (cumulatively, “REs”). They shall come into force from January 1, 2026.The Co-Lending Directions apply to Co-Lending Arrangements (“CLAs”), which are arrangements, formalised through an ex-ante agreement, between a RE which is originating the loans (“Originating RE”) and another RE which is co-lending (“Partner RE”), to jointly fund a portfolio of loans in a pre-agreed proportion, involving revenue and risk sharing. The Co-Lending Directions apply to CLAs but not to loans sanctioned under multiple banking, consortium lending, or syndication.
General Guidelines: The Co-Lending Directions prescribe that each RE under a CLA must retain a minimum 10 per cent share of the individual loans in its books. The credit policy of a RE must 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.The agreement between CLA partners must detail terms of the arrangement, borrower selection criteria, product lines, fees (if any), and division of responsibilities. It must also cover information exchange timelines, customer interface, protection, and grievance redressal. The loan agreement must clearly disclose the roles and responsibilities of the REs, including the single point of interface with the borrower, with prior intimation required for any changes. It must also include provisions on customer protection and grievance redressal.
Interest Rate and Other Fees/Charges: The Co-Lending Directions prescribe that the final interest rate charged to the borrower must be the blended interest rate, 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. Any fees / charges payable by the borrower in addition to the blended interest rate shall be incorporated in computation of annual percentage rate (APR) and disclosed appropriately in the Key Facts Statement.
Operational Arrangements: It is prescribed that the CLA would entail an irrevocable commitment on the part of Partner RE to take into its books, on a back to back basis, its share of the individual loans as originated by the Originating RE. The Originating RE must also ensure that it transfers the loans under CLA only to the Partner RE within 15 days, failing which they would remain on the books of the Originating RE and could be transferred to other eligible lenders. Each RE must maintain a borrower’s account individually for its respective share of the loan. All transactions between the REs or with the customer must be routed through an escrow account maintained with a bank, potentially including one of the REs. While each RE must comply with the Know-Your-Customer norms, the Partner RE may rely upon the Originating RE for the “Customer Identification Process”.
Other provisionsThe Originating RE may provide default loss guarantee up to five per cent of loans outstanding in respect of loans under CLA.If either of the REs classifies its exposure to a borrower under a CLA as Special Mention Account / Non-Performing Asset 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 must 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. Further, REs may transfer their loan exposures under the CLA to third parties, only with the mutual consent of both the Originating RE and Partner RE, as the case may be.Our viewThe Co-Lending Directions are welcome insofar as they formalize and regulate CLAs, largely focusing on disclosure and agreement requirements, thus recognizing and enabling REs to structure their lending arrangements as they see fit.
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