Borrowers Benefit From 'Blended Interest Rates': Icra

New Delhi, Apr 17 (PTI) Rating agency Icra on Thursday said borrowers would benefit from the introduction of 'blended interest rates' for co-lending and sourcing arrangements as proposed by the Reserve Bank of India's draft framework.

On April 9, 2025, the RBI came out with a draft framework for co-lending and sourcing arrangements to cover a wide-ranging variety of arrangements among regulated entities (REs), which were not expressly covered in the past.

The draft framework also offered enhanced coverage of all asset segments vis-à-vis only priority sector lending (PSL) in the past.

This draft framework gains prominence given that the size of co-lending transactions have been witnessing robust growth over the past few years, the agency said.

According to the Icra report, the comprehensive scope of the proposed framework is set to provide clarity and guidance on permitted arrangements.

All categories of sourcing and co-lending arrangements, with certain exceptions, are covered under the draft directions; this would significantly increase clarity for REs and re-shape the way such arrangements currently operate.

"Borrowers to benefit from introduction of 'blended interest rates' as draft directions propose to shift to a blended interest rate, which is calculated as an average rate of interest derived from the interest rates charged by respective funding REs, weighted by their proportionate funding shares," it said.

Under the proposed co-lending arrangements, Icra added that asset classification by the regulated entities shall be applicable at the borrower level.

This implies that if any of the regulated entities classifies their exposure as SMA (Special Mention Account)/NPA (Non-Performing Asset), the same classification shall be applicable to the exposure of other regulated entities as well, it said, adding that this will bring clarity on reporting of asset classification.

"In a nutshell, the draft framework is set to usher in greater operational flexibility for NBFCs but stricter compliance on default loss guarantees (DLGs) and disclosures," Icra said.

It is also likely to lower interest rates and bring in transparency for borrowers, even while it aims to reduce systemic risks by curbing implicit guarantees and standardizing practices, the report said.