Understanding the RBI’s New Rules on Co-Lending Arrangements

The Reserve Bank of India has released a fresh set of rules dealing with co-lending partnerships between regulated financial institutions. These new norms, issued through the RBI (Co-Lending Arrangements) Directions, 2025, are meant to streamline how banks and NBFCs work together while lending to customers. They replace the 2020 co-lending circular and set out a more structured approach for future arrangements.

The updated framework applies to commercial banks (with the exception of small finance banks, local area banks and regional rural banks), All-India financial institutions, and NBFCs, including housing finance companies. These rules officially take effect from January 1, 2026, unless an institution adopts them earlier through its internal policy. Co-lending deals already in place, as well as those signed before the new norms become effective, will continue under the earlier 2020 guidelines.

While the new directions build on several principles from the old circular, they also introduce several important changes. One of the most notable revisions is the reduced minimum share that each regulated lender must retain. The earlier requirement that NBFCs hold at least 20% of every loan has now been replaced with a lower, uniform 10% minimum for each participating lender. Another key shift is that the partnering lender must now commit in advance to taking its agreed portion of every loan, which removes the earlier flexibility to accept or reject individual loans. The approach to interest rates has also been standardised. Borrowers will now be charged a single, blended rate calculated by taking the weighted average of each lender’s rate according to its share of funding. In addition, the partner lender must reflect its part of the loan on its books within a specified timeline. If it does not do so, the originating lender will either continue to hold the exposure or transfer it under the usual regulatory route.

The directions further allow the originating lender to offer a default loss guarantee of up to five percent of the outstanding portfolio under a co-lending arrangement, subject to digital lending rules. Borrower-level asset classification has also been made uniform. If one lender classifies a borrower as stressed, the same classification must be applied by the other lenders in the arrangement, although each institution will still follow its own provisioning norms. Recognising the importance of timely information, the new framework calls for almost real-time sharing of data between the participating lenders. All relevant updates must be exchanged by the end of the next working day to ensure accurate reporting to credit information companies and to support aligned asset classification and provisioning.