RBI tightens co-lending rules to enhance risk sharing and transparency
Reserve Bank of India has released new rules for co-lending between banks and NBFCs. Lenders must keep 10% of each loan. Default loss guarantee is now capped at 5%. A uniform asset classification is introduced. Credit policies must include co-lend...
The Reserve Bank of India (RBI) on Wednesday issued revised guidelines to strengthen the co-lending framework between banks and non-bank financial companies (NBFCs). The new rules mandate that all regulated entities (REs) involved in co-lending arrangements (CLAs) must retain at least 10% of each individual loan on their own books.
Additionally, the originating lender may now provide a default loss guarantee (DLG) of up to 5% of the outstanding loan amount under a CLA. The RBI also introduced a uniform asset classification system: if one lender classifies a loan as a Special Mention Account (SMA) or Non-Performing Asset (NPA), the same classification must be applied by the co-lending partner for their exposure to that borrower.
The RBI further stated that lenders must incorporate provisions for co-lending in their credit policies. Co-lending agreements must detail the criteria for borrower selection, product lines, geographical areas of operation, fee structures, and other relevant terms.
The loan agreement with the borrower must include an upfront disclosure of the roles and responsibilities of each partner. The interest rate charged to borrowers will be a blended rate, calculated based on the weighted average of each RE’s internal rate, proportionate to their funding contribution.
All transactions—including disbursements and repayments—between the REs and with the borrower must be routed through an escrow account maintained with a bank.
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These changes aim to bring greater consistency, accountability, and risk alignment among co-lending partners while safeguarding borrower interests.
