The Reserve Bank of India (RBI) has issued revised directions on co-lending arrangements between banks and regulated entities (REs) such as NBFCs and HFCs. These rules — effective January 1, 2026 — tighten risk-sharing, disclosure and operational requirements to increase transparency and borrower protection.
1. Minimum Risk Retention (10%)
Rule: Each regulated entity participating in a co-lending loan must retain at least 10% of that loan on its own books to ensure aligned incentives.
Example: For a ₹10,00,000 home loan jointly funded by a bank and an NBFC, the originating NBFC (if it is the originator) must hold at least ₹1,00,000 on its books.
2. Clear Disclosure to Borrowers
Rule: Borrowers must be informed — in writing and up front — who the Originating RE and Partner RE are, which party handles collections, record-keeping, grievances, and other responsibilities.
Example: If an NBFC originates the loan and the bank funds 60%, the NBFC must clearly disclose: “We handle onboarding and collections; the bank handles settlement and record maintenance.”
3. Reflection of Loan Share (within 15 days)
Rule: Each lender must reflect its funded share of the loan in its accounts within 15 calendar days from disbursement.
Example: If an NBFC disburses ₹5,00,000 and the bank’s agreed share is 40% (₹2,00,000), the bank must recognise the ₹2,00,000 on its books within 15 days.
4. Cap on Default Loss Guarantees (DLGs)
Rule: Any Default Loss Guarantee provided by the originating RE is capped (for example) at 5% of outstanding co-lending exposures — preventing unlimited credit enhancement.
Example: If total co-lending loans outstanding are ₹100 crore, the originating RE’s maximum permissible DLG would be ₹5 crore.
5. Borrower-Level Asset Classification
Rule: Asset classification and NPA tagging are done at the borrower level. A default recognised by one RE must be reflected by the partner RE too.
Example: If a borrower stops servicing their EMI to the NBFC, the partner bank must also treat that account as defaulted (SMA/NPA) in its books.
- Blended interest rate: Borrowers are charged a blended/weighted rate based on each lender’s share; all fees must be disclosed in the Key Facts Statement (KFS).
- Single KYC/Customer Onboarding: The framework allows a single KYC process to be relied upon by the partner RE, with appropriate documentation and governance.
- Reporting & MIS: REs must report their shares to credit information companies and maintain robust operational controls (escrow, irrevocable funding commitments, business continuity plans).
In short, the RBI’s directions make co-lending arrangements more transparent and ensure that banks and NBFCs share both risks and responsibilities while protecting borrowers from hidden charges or opaque practices.
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