On Wednesday, the Reserve Bank of India (RBI) released its final guidelines on co‑lending arrangements, signalling bigger changes in how banks and NBFCs collaborate to extend credit.

Change in Co‑Lending Loans (2025)

Under the November 2020 norms, co‑lending was permitted only between banks and NBFCs, where NBFCs could originate priority sector loans for banks and had to retain at least 20% of each loan.
In the draft framework (April 2025), RBI proposed opening co‑lending to all regulated entities, allowing arrangements between two NBFCs or two banks across both secured and unsecured loans.
The final norms now mandate each lender in a co‑lending arrangement must retain at least 10% of the loan on their books.

Below is a comparison of the co‑lending models:

Model	Origin Year	Allowed Partners	Retention Requirement
2020 Norms	2020	Banks & NBFCs (priority)	NBFC retains ≥ 20%
April 2025 Draft	April 2025	All regulated entities	No explicit retention
Final Norms (2025)	August 2025	All regulated entities	Each lender retains ≥ 10%

These norms take effect from January 1, 2026.

15‑Day Loan Share Transfer Requirement

The originating lender must transfer the partner's share within 15 calendar days of disbursement; failing which, the loan remains on the originator's books and can only be transferred under the Transfer of Loan Exposure (TLE) norms, 2021.

Borrower-Level Asset Classification & Blended Interest Rates

Co‑lending partners must apply borrower-level asset classification, meaning if one lender flags a borrower as an NPA, the same classification applies to the other lender. Blended interest rate is the weighted average of rates charged by all lenders, scaled by their respective shares. All fees must be disclosed via APR and a Key Facts Statement.

What Is a Blended Interest Rate?

A blended interest rate combines rates from multiple lenders (e.g., banks and NBFCs) to compute the borrower's effective cost of borrowing. It is weighted by each lender’s contribution.

Unlike the repo rate, a benchmark set by RBI to influence lending costs—the blended rate varies based on the lenders’ individual funding costs. Typically, banks offer lower interest rates, while NBFCs charge higher.

Hence, the blended rate often falls between the two but leans towards the higher end when NBFCs hold a larger share.

Expanded Scope & Effective Date of the Framework

The new rules expand co‑lending to include all commercial banks (excluding small finance banks), All‑India Financial Institutions, and NBFCs including housing finance companies The final norms come into effect on January 1, 2026, though earlier adoption is permitted.

Regarding co‑lending between two NBFCs or two banks, this was indeed proposed in the April draft but is not part of the final norms, the final rules continue to apply broadly to all REs but do not explicitly endorse NBFC-to-NBFC or bank-to-bank co‑lending.

Lending Benefits for Borrower Segments

Industry experts expect the updated co‑lending framework to unlock fresh opportunities for retail, MSMEs, and consumption credit, sectors where banks are traditionally more conservative on small-value loans.

What If the Originator Doesn’t Transfer Within 15 Days?

If the transfer isn't completed within the stipulated period, the loan remains on the originator’s books. Any subsequent transfer must follow the Transfer of Loan Exposure norms (2021).

Additional Provisions & Disclosures

The framework also requires:

Mutual consent for any further transfer of loan exposure, whether to third parties or between lending entities.
Lenders must maintain a business continuity plan, ensuring uninterrupted borrower service if a co‑lending partnership ends.
A public list of active co‑lending partners on the lender’s website.
A board-approved credit policy covering:
- Internal portfolio limits for co‑lending
- Target borrower segments
- Due diligence processes
- Customer service standards
- Grievance redressal mechanisms (mint)

Below is a summary of these operational and disclosure requirements:

Requirement	Details
Further Loan Transfers	Require mutual consent & compliance with TLE norms
Business Continuity Plan	Must guarantee borrower support if co‑lending ends
Partner Disclosure	List of active co‑lending partners must be on website
Credit Policy	Must define portfolio limits, borrower segments, due diligence, grievance mechanism

Conclusion

RBI’s 2025 co‑lending framework tightens risk-sharing and transparency while extending collaboration possibilities beyond priority sectors. Though broader in scope, the rules now exclude NBFC-to-NBFC or bank-to-bank co-lending, contrary to draft proposals.

With mandatory loan retention, timely transfers, blended rates, and enhanced disclosures, this model is structured to encourage responsible and inclusive lending, set to become effective January 1, 2026.

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