RBI Drafts Inclusive Co-Lending Framework for All Regulated Entities

• The Reserve Bank of India (RBI) has issued a draft framework to expand co-lending arrangements beyond banks and NBFCs, aiming to include all regulated entities.
• The new framework allows co-lending for all types of loans, not just priority sector lending, unlocking a wider credit delivery channel.

Key Highlights of the Proposed Framework

• Existing Guidelines: Currently apply only to co-lending between banks and NBFCs, restricted to priority sector lending.
• Proposed Expansion: Co-lending will be permitted for any loan category—both priority and non-priority—between:
  • Commercial Banks
  • Non-Banking Financial Companies (NBFCs)
• Excluded Entities: Regional Rural Banks (RRBs), Small Finance Banks (SFBs), and Local Area Banks will not be eligible under this framework.

Operational Model

• A Co-Lending Arrangement (CLA) enables two financial institutions to jointly disburse loans based on a pre-agreed lending proportion.
• Banks involved in priority sector co-lending can still claim PSL credit for their share.

Regulatory Disclosure Requirements

• Participating institutions must clearly disclose:
  • Targeted borrower segments
  • Loan terms and pricing
  • Internal exposure limits for borrowers
  • Risk-sharing agreements

Expected Impact

• Enhances financial inclusion and credit flow to underserved segments.
• Encourages collaborative lending practices while maintaining transparency and risk discipline.
• Supports portfolio diversification and capital efficiency for lenders.