RBI Co-Lending Arrangements Directions 2025: The New Framework for Banks and NBFCs from January 2026

The Reserve Bank of India (Co-Lending Arrangements) Directions, 2025, which came into effect on January 1, 2026, replace the earlier 2020 co-lending circular and establish a comprehensive regulatory framework for joint lending by banks and Non-Banking Financial Companies. The new framework standardises the operational structure of co-lending arrangements (CLAs), introduces clearer borrower protection norms, and sets minimum retention requirements for both lending partners. This article explains the key obligations for regulated entities and what borrowers can expect under the new regime.

Scope and Applicability

The Directions apply to commercial banks (excluding small finance banks, local area banks, and regional rural banks), All-India Financial Institutions, and NBFCs including housing finance companies. Under a CLA, an originating regulated entity (typically an NBFC) originates and processes the loan, while a partner regulated entity (typically a bank) co-funds the loan and shares the credit risk. The NBFC leverages its customer access and origination expertise, while the bank provides lower-cost funding. The framework applies regardless of whether the loan is originated digitally or through physical channels.

Key Operational Requirements

Both the originating and partner entities must retain at least 10 per cent of every loan on their own books throughout the loan tenure. All transactions between the lending partners and with borrowers must flow through a designated escrow account maintained with a bank. The partner entity must record its share of the loan in its books within 15 calendar days of disbursement. Borrowers must be charged a single blended interest rate that combines the contributions of both lenders. The originating entity may provide a Default Loss Guarantee of up to 5 per cent of outstanding loans under the CLA, subject to compliance with the RBI's digital lending norms.

Borrower Protections and Grievance Redressal

The Directions mandate a formal written agreement between the co-lending partners covering all responsibilities including loan origination, credit assessment, servicing, customer interface, grievance redressal, and revenue sharing. If one entity classifies a co-lent loan as a Non-Performing Asset, the same classification must be adopted by the other entity through a real-time sharing mechanism. This ensures that both lenders recognise stressed assets simultaneously and prevents divergent asset quality reporting. Borrowers must be informed about the co-lending arrangement and must have a single point of contact for grievance redressal.

What Lenders Must Do for Compliance

Banks and NBFCs engaged in or planning co-lending arrangements must review and update their CLA agreements to conform to the new Directions. Key compliance steps include establishing the mandated escrow account structure, implementing the 15-day transfer timeline, ensuring blended interest rate computation, setting up real-time NPA classification sharing, designating a single borrower-facing grievance officer, and ensuring that the 10 per cent minimum retention requirement is maintained throughout the loan tenure. Boards of both lending partners should approve updated internal policies reflecting these requirements. The Directions provide a structured and transparent foundation for co-lending in India, addressing regulatory concerns while preserving the model's benefits for financial inclusion.