Draft RBI Guidelines on Co-lending

• Issued by the Reserve Bank of India (RBI) in April 2025.
• Expanded the scope of co-lending to include all regulated entities, such as banks and NBFCs.
• Extended applicability to non-priority sectors, beyond just priority sector lending (PSL).
• Aim: Improve regulatory clarity, credit flow to underserved sectors, and ensure real-time data integration for better risk monitoring.

Technological and Operational Implications

• The RBI mandates simultaneous origination and disbursement of loans.
• NBFCs must upgrade IT systems to enable real-time information sharing with banking partners.
• Full-scale tech integration may take most of FY26, say NBFC executives.
• Operational alignment between banks and NBFCs will require at least 6 months, due to complex tech and process overhauls.

Concerns Around Colending Model 2 (CLM 2)

• Draft guidelines do not clarify the status of CLM 2, widely used by banks and NBFCs.
  • In CLM 2, NBFC retains minimum 20% of the loan on its books; bank takes 80%.
  • In CLM 1, both entities co-originate and disburse loans simultaneously.
• Focus on CLM 1 may disrupt existing colending partnerships.
• Industry has called for clarity and flexibility to accommodate both models.

Expected Outcomes

• Once systems are upgraded, the guidelines are expected to:
  • Facilitate standardised and scalable colending arrangements
  • Improve transparency and borrower tracking
  • Boost credit access in non-priority and underserved segments

BS