{"id":51021,"date":"2025-08-11T19:03:07","date_gmt":"2025-08-11T13:33:07","guid":{"rendered":"https:\/\/www.nextias.com\/ca\/?p=51021"},"modified":"2025-08-11T19:41:10","modified_gmt":"2025-08-11T14:11:10","slug":"rbi-new-co-lending-rules","status":"publish","type":"post","link":"https:\/\/www.nextias.com\/ca\/current-affairs\/11-08-2025\/rbi-new-co-lending-rules","title":{"rendered":"RBI\u2019s New Co-Lending Rules"},"content":{"rendered":"\n<p><strong>Syllabus: GS3\/ Economy<\/strong><\/p>\n\n\n\n<h2 class=\"wp-block-heading\"><strong>Context<\/strong><\/h2>\n\n\n\n<ul class=\"wp-block-list\">\n<li>The Reserve Bank of India (RBI) has issued revised guidelines to tighten co-lending arrangements between banks and non-banking financial companies (NBFCs), effective <strong>January 1, 2026.<\/strong><\/li>\n<\/ul>\n\n\n\n<h2 class=\"wp-block-heading\"><strong>What is Co-Lending?<\/strong><\/h2>\n\n\n\n<ul class=\"wp-block-list\">\n<li>It refers to the <strong>collaborative loan service<\/strong> where two lending <strong>institutions jointly fund loans <\/strong>to borrowers.\u00a0<\/li>\n\n\n\n<li>This partnership allows both entities to distribute their resources more efficiently, providing customers with the combined expertise and financial muscle of both lenders.<\/li>\n\n\n\n<li>The RBI introduced the co-origination framework in<strong> 2018<\/strong>, allowing banks and NBFCs to co-originate loans. This framework was later updated in <strong>2020<\/strong> and renamed the <strong>Co-Lending Model (CLM).<\/strong><\/li>\n<\/ul>\n\n\n\n<h2 class=\"wp-block-heading\"><strong>Key Highlights of Co-Lending Guidelines<\/strong><\/h2>\n\n\n\n<ul class=\"wp-block-list\">\n<li><strong>Mandatory Loan Retention:<\/strong> All regulated entities (REs) involved in co-lending (banks, NBFCs, etc.) must retain at least 10% of each individual loan on their balance sheet.<\/li>\n\n\n\n<li><strong>Default Loss Guarantee Cap:<\/strong> The\u00a0 loan-originating entity can provide a default loss guarantee capped at 5% of the outstanding loan amount.<\/li>\n\n\n\n<li><strong>Uniform Asset Classification:<\/strong> If one lender classifies a borrower as a <strong>Special Mention Account (SMA) <\/strong>or <strong>non-performing asset (NPA) <\/strong>due to default, the same status must be adopted by the co-lending partner for its share of the exposure.\u00a0<\/li>\n\n\n\n<li><strong>Credit Information Sharing:<\/strong> Both entities must also share relevant credit information on a near real-time basis, and no later than the end of the next working day.<\/li>\n\n\n\n<li><strong>Internal Policy Requirements:<\/strong> REs must update their credit policies and prepare dedicated internal guidelines covering; Target borrower segments, Internal portfolio limits, Fee structures, Partner due diligence processes, Customer service protocols, Grievance redressal mechanisms.<\/li>\n<\/ul>\n\n\n\n<h2 class=\"wp-block-heading\"><strong>Significance of Co-Lending Guidelines<\/strong><\/h2>\n\n\n\n<ul class=\"wp-block-list\">\n<li><strong>Improved Transparency:<\/strong> Clear borrower-level disclosures and uniform NPA classification reduce confusion and misreporting.<\/li>\n\n\n\n<li><strong>Strengthening Priority Sector Lending (PSL): <\/strong>It banks to meet PSL targets by partnering with NBFCs and fintechs that have deeper rural and MSME reach.<\/li>\n\n\n\n<li><strong>Regulatory Discipline:<\/strong> Near real-time credit information sharing<strong> promotes early detection of stress<\/strong> and prevents \u201cevergreening\u201d of loans in co-lending portfolios.<\/li>\n<\/ul>\n\n\n\n<h2 class=\"wp-block-heading\"><strong>Implementation Challenges<\/strong><\/h2>\n\n\n\n<ul class=\"wp-block-list\">\n<li><strong>Technology Integration:<\/strong> Linking multiple lenders\u2019 systems for near real-time credit info sharing will be costly and complex.<\/li>\n\n\n\n<li><strong>Capital Constraints: <\/strong>Retention requirements may reduce lending appetite in certain sectors, impacting small-ticket loans.<\/li>\n\n\n\n<li><strong>Operational Coordination:<\/strong> Ensuring uniform asset classification across different institutions requires process alignment and strong governance frameworks.<\/li>\n\n\n\n<li><strong>Transition Period Risks: <\/strong>Existing agreements need renegotiation; and confusion could arise during the transition to the new norms.<\/li>\n<\/ul>\n\n\n\n<h2 class=\"wp-block-heading\"><strong>Way Ahead<\/strong><\/h2>\n\n\n\n<ul class=\"wp-block-list\">\n<li><strong>Gradual Phase-In: <\/strong>Consider a phased capital retention increase for smaller players to avoid sudden liquidity shocks.<\/li>\n\n\n\n<li><strong>Regular Audits: <\/strong>Third-party audits of co-lending arrangements to ensure adherence to asset classification, DLG caps, and retention rules.<\/li>\n\n\n\n<li><strong>Stakeholder Forums: <\/strong>Create an industry-RBI working group to address implementation issues promptly during the transition phase.<\/li>\n<\/ul>\n\n\n\n<p><strong>Source: <\/strong><a href=\"https:\/\/www.business-standard.com\/finance\/news\/rbi-revises-co-lending-norms-mandates-10-loan-retention-loss-guarantee-125080601927_1.html\" rel=\"nofollow noopener\" target=\"_blank\"><strong>BS<\/strong><\/a><\/p>\n","protected":false},"excerpt":{"rendered":"<h3><strong>Context<\/strong><\/h3>\n<li class=\"ms-5\">The Reserve Bank of India (RBI) has issued revised guidelines to tighten co-lending arrangements between banks and non-banking financial companies (NBFCs), effective January 1, 2026.<\/li>\n<p><\/p>\n<h3><strong>What is Co-Lending?<\/strong><\/h3>\n<li class=\"ms-5\">It refers to the collaborative loan service where two lending institutions jointly fund loans to borrowers.\u00a0<\/li>\n<li class=\"ms-5\">This partnership allows both entities to distribute their resources more efficiently, providing customers with the combined expertise and financial muscle of both lenders.<\/li>\n<li class=\"ms-5\">The RBI introduced the co-origination framework in 2018, allowing banks and NBFCs to co-originate loans. This framework was later updated in 2020 and renamed the Co-Lending Model (CLM).<\/li>\n<p><a href=\"https:\/\/www.nextias.com\/ca\/current-affairs\/11-08-2025\/rbi-new-co-lending-rules\" class=\"btn btn-primary btn-sm float-end\">Read\u00a0More<\/a><\/p>\n","protected":false},"author":15,"featured_media":51045,"comment_status":"closed","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"_acf_changed":false,"footnotes":""},"categories":[21],"tags":[],"class_list":["post-51021","post","type-post","status-publish","format-standard","has-post-thumbnail","hentry","category-current-affairs"],"acf":[],"jetpack_featured_media_url":"https:\/\/wp-images.nextias.com\/cdn-cgi\/image\/format=auto\/ca\/uploads\/2025\/08\/rbi-new-co-lending-rules.png","_links":{"self":[{"href":"https:\/\/www.nextias.com\/ca\/wp-json\/wp\/v2\/posts\/51021","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/www.nextias.com\/ca\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/www.nextias.com\/ca\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/www.nextias.com\/ca\/wp-json\/wp\/v2\/users\/15"}],"replies":[{"embeddable":true,"href":"https:\/\/www.nextias.com\/ca\/wp-json\/wp\/v2\/comments?post=51021"}],"version-history":[{"count":2,"href":"https:\/\/www.nextias.com\/ca\/wp-json\/wp\/v2\/posts\/51021\/revisions"}],"predecessor-version":[{"id":51032,"href":"https:\/\/www.nextias.com\/ca\/wp-json\/wp\/v2\/posts\/51021\/revisions\/51032"}],"wp:featuredmedia":[{"embeddable":true,"href":"https:\/\/www.nextias.com\/ca\/wp-json\/wp\/v2\/media\/51045"}],"wp:attachment":[{"href":"https:\/\/www.nextias.com\/ca\/wp-json\/wp\/v2\/media?parent=51021"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/www.nextias.com\/ca\/wp-json\/wp\/v2\/categories?post=51021"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/www.nextias.com\/ca\/wp-json\/wp\/v2\/tags?post=51021"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}