RBI Proposes Co-Lending Expansion: Wider Credit Access

Mumbai, Apr 9 (PTI) The RBI on Wednesday proposed to expand the scope for co-lending beyond priority sector loans, and issue a generic regulatory framework for all forms of such arrangements among banks and NBFC, with a view to cater to the credit needs of a wider segment in a sustainable manner.

The extant guidelines on co-lending are applicable only to arrangements between banks and NBFCs for priority sector loans.

Co-lending arrangement (CLA) refers to an arrangement formalised through an ex ante legal agreement, among the permitted regulated entities (REs) to jointly fund a loan portfolio in a pre-agreed proportion, involving revenue and risk sharing.

The regulated entities (REs) enter into several co-lending arrangements (CLAs), apart from sourcing arrangements, for extension of credit to the borrowers.

While there are separate guidelines covering some of these arrangements, for example digital lending, co-lending by banks with NBFCs to priority sector, as well as applicable guidelines on outsourcing of financial services, such regulatory frameworks do not cover all the possible categories of co-lending arrangements.

A comprehensive market enabling draft framework has been prepared to specify the regulatory norms and guidance for all such CLAs, in general, while addressing certain prudential issues, said the draft Reserve Bank of India (Co-Lending Arrangements) Directions, 2025.

"The credit policies of REs shall 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 mechanisms," the draft said.

Also, the agreement to be entered among the CLA partners shall include detailed terms and conditions of the arrangement; the criteria for selection of borrowers; specific product lines and areas of operation; fees payable for lending services, if any; provisions related to segregation of responsibilities; customer interface and customer protection issues.

"In addition, the loan agreement signed by borrower with funding RE(s) shall make an upfront disclosure regarding the segregation of the roles and responsibilities (such as sourcing, funding, and servicing) of concerned partners, including entity having customer interface," said the draft on which the RBI has sought comment by May 12.

It also said the interest rate and any other fees/charges on the underlying loans charged to the borrower shall be based on the contractual agreement, subject to the regulatory norms applicable to the REs.

Any fee/charges payable to the sourcing or servicing entity shall be part of a separate arrangement and shall not be included in the calculation of blended interest rate, the draft said.