Context:
On 6 August 2025, the Reserve Bank of India (RBI) issued revised guidelines on co-lending arrangements, expanding the framework to all regulated entities and beyond priority sector lending. The move aims to strengthen governance, transparency, and risk-sharing in co-lending but is expected to cause short-term disruptions, particularly for smaller NBFCs and fintechs.
Key Highlights:
- Mandatory Retention: Each lender must retain at least 10% of the loan on its own books.
- 15-Day Transfer Rule: Loan originator must transfer the loan to the co-lender within 15 days of origination, failing which it won’t qualify as co-lending.
- Escrow Accounts: Disbursements and collections must be routed through escrow-based mechanisms.
- Audit Inclusion: Loans under co-lending arrangements will now be subject to audits.
- Blended Rate: Clarification needed on calculation; lenders fear ambiguity could impact competitiveness.
- Deadline: Guidelines take effect from January 2026. Smaller NBFCs have requested an extension.
Operational Challenges:
- Increased compliance and operational costs due to escrow accounts, stricter KYC norms, and tech integration.
- Smaller NBFCs and microfinance players face hurdles in segments with cash-based collections.
- Risk of short-term moderation in co-lending volumes as lenders recalibrate systems.
- Fintechs warn of higher costs, slower deal execution, and need for process overhauls.
Long-Term Outlook
- Guidelines expected to improve transparency, governance, and lender confidence.
- Greater scope for partnerships beyond priority sector lending.
- With proper tech integration, co-lending books of banks, NBFCs, and fintechs expected to expand.
- Improved compliance frameworks may attract more structured capital into NBFC segments.
