RBI Co-Lending Arrangements 2025: Complete Guide for Banks & NBFCs
“True guidance is like holding a lamp — it doesn’t walk for you, but it lights the way.”
At Estabizz Fintech Private Limited, we believe compliance should not feel like a maze. Our role is not to “sell” rules, but to serve as your compliance partner cum coach who makes RBI circulars simple enough to remember for life.
The RBI Co-Lending Arrangements 2025 are one such landmark framework. They come into effect from 1st January 2026 (or earlier, if a regulated entity adopts them internally), and they reshape how banks, NBFCs, and financial institutions lend together.
For Eg. Think of this framework like a group project in school. Earlier, one student often did all the work while others just added their names. Now, RBI has said: if you want to do a group project, here are the rules — everyone must contribute, share marks fairly, and no one should confuse the teacher (the borrower) about who is doing what.
Applicability of the RBI Co-Lending Arrangements Directions 2025
The Directions apply to three main sets of players:
- Commercial Banks – but with an exception: Small Finance Banks, Regional Rural Banks, and Local Area Banks are not included.
- All India Financial Institutions (AIFIs) – the apex level financial institutions.
- NBFCs including Housing Finance Companies (HFCs) – the ground-level players who directly reach borrowers.
To imagine this better, picture a marriage ceremony. The bride’s side (NBFCs/HFCs) brings reach and relationships, the groom’s side (banks/AIFIs) brings scale and stability, and the priest (RBI) sets the rituals. Everyone is welcome to co-lend — except those cousins (RRBs, SFBs, LABs) who are excused from this ceremony.
What is a co-lending arrangement?
As per RBI, a Co-Lending Arrangement (CLA) is a pre-agreed partnership between:
- An originating RE (the one who sources and originates the loan), and
- A partner RE (the one who co-lends alongside in an agreed ratio).
Together, they jointly fund a pool of loans—secured or unsecured—and share the risk, income, and responsibilities.
Think of this like running a food stall at a fair. One friend brings the cooking skills (originator), another brings the money for raw materials (partner), and both share the profits and complaints. But unless they write down their duties clearly, fights are bound to happen. RBI wants every CLA to be properly written and followed so that the borrower (customer) always gets the promised plate of food without confusion.
General Guidelines under RBI Co-Lending Arrangements Directions 2025
Minimum Retention Requirement
Every regulated entity in a CLA must retain at least 10% of each loan on its own books.
To make this memorable, recall the story of buying a shared bicycle. Parents tell both siblings: “You must each contribute at least 10% from your own pocket.” This ensures no one takes a free ride. Similarly, lenders cannot pass on full risk to others — each must have “skin in the game.”
Credit Policy Framework
RBI requires all institutions to include CLA provisions in their credit policies.
Think of it like preparing a college timetable. You cannot add surprise classes without approval. In the same way, CLAs cannot be treated as “extra-curricular activities.” They must become part of the official timetable (credit policy) of the institution.
Co-Lending Agreement Requirements
The co-lending agreement itself is like the rule book of a cricket match. It must clearly spell out:
- How borrowers are selected,
- What product lines are covered,
- Who takes care of which responsibilities,
- How information is shared,
- How customer complaints are resolved, and
- Even small details like service fees.
If such an agreement is vague, it’s like a cricket game without an umpire — every appeal turns into a fight. By enforcing written clarity, RBI ensures smooth partnership and borrower protection.
Loan Agreement Disclosures
The loan agreement signed with the borrower must disclose upfront:
- Who is responsible for sourcing,
- Who is responsible for servicing, and
- Which entity is the single point of contact for the customer.
To make it stick, imagine you are admitted to a hospital. If one doctor prescribes medicine while another doctor changes it secretly, you will only suffer. RBI ensures the borrower deals with one responsible doctor (entity), and any change in this doctor must be informed in advance.
Borrower Disclosures (Key Facts Statement)
RBI has made it mandatory that borrowers must receive complete CLA details, in line with the Key Facts Statement (KFS) for Loans & Advances dated 15 April 2024.
This is like buying a railway ticket. You always get a slip that says where you’re going, who is the train operator, and what are the timings. Without that slip, you’re standing on the platform confused. Similarly, the KFS makes sure every borrower knows who is lending, who is servicing, and how to complain if something goes wrong.
“Discipline is the bridge between goals and accomplishment,” said Jim Rohn. At Estabizz Fintech Private Limited, we see RBI’s framework as that discipline — guiding lenders towards fair, responsible, and transparent co-lending. Let’s continue exploring the clauses in depth.
Priority Sector Lending (PSL) Treatment
Under the RBI Co-Lending Arrangements Directions 2025, loans that qualify as Priority Sector Lending (PSL) can still be reported as PSL by each lender for its share.
Think of PSL like India’s social service day in school. Every student contributes — some paint the walls, some plant trees, some teach slum children. At the end, each one records their contribution for marks. Similarly, both banks and NBFCs in a CLA get to count their respective share of PSL loans towards their PSL targets. This ensures joint effort, individual recognition.
Accounting & Capital Adequacy
RBI requires NBFCs and other regulated entities to follow strict accounting rules. Specifically, unrealised profit under CLAs cannot be counted towards CET1 capital or Net Owned Funds until the loan matures.
This is the classic “don’t count your chickens before they hatch” rule. Just because a crop is standing in the field doesn’t mean you can already sell it in the mandi. Only when it’s harvested and sold, does it count as income. Likewise, RBI tells institutions: “Be patient. Show profits only when they’re realised.”
This protects the system from inflated numbers and ensures capital adequacy remains realistic.
Asset Classification – Same Diagnosis for All
One of the most powerful clauses is about uniform asset classification. Under CLAs, a borrower’s account status (Standard, SMA, or NPA) must be the same for all partners.
Imagine a student scoring 30 marks in math. One teacher says “Pass,” another says “Fail.” The child would be completely confused. RBI prevents this. If one RE calls a borrower NPA, everyone else must also call it NPA — and this update must be shared in near real time (no later than next working day).
Memory trick: “One patient, one diagnosis.”
Default Loss Guarantee (DLG)
The originating RE may provide a Default Loss Guarantee (DLG) of up to 5% of the outstanding loan amount. This must comply with RBI’s Master Directions on DLG (MD-DLD).
Think of this like a school project leader promising to redo up to 5% of the project if teammates make mistakes. Beyond that, everyone carries their own responsibility. RBI ensures guarantees are capped, so one partner doesn’t bear all the risk while others ride free.
Disclosure Requirements
Transparency is the backbone of the framework. RBI requires two levels of disclosures:
- Website Disclosure – Every RE must publish the list of its active co-lending partners prominently on its website.
- Financial Statement Disclosure – CLAs must be reported in the Notes to Accounts of quarterly/annual financial statements.
Real-life analogy? It’s like team members pinning their names on the class notice board. Everyone must know who is in the team, and reports must show exactly who contributed what. Borrowers, regulators, and investors get a clear picture — no secret partnerships.
Operational Framework
RBI has made the operational framework watertight.
- Loan Booking: Each lender’s share must be recorded in its own books within 15 calendar days of disbursement.
→ Imagine two siblings buying a cupboard together. Both must write down in their diaries, “We own this cupboard.” Not after a month, not casually — within 15 days. - Escrow Account: All disbursements and repayments must flow through a common escrow account with a bank (which can be one of the partners).
→ Picture a wedding envelope box. Every gift (repayment) is dropped in one single box. Later, as per agreement, money is shared. Nobody takes gifts secretly in their pocket. - Clear Appropriation Rules: The CLA must define how money is divided between partners from the escrow.
→ Like deciding beforehand: “After the wedding, groom’s family will keep 60% of gifts, bride’s family 40%.” Clear rules avoid post-event fights.
Why These Clauses Matter
The second half of the framework is where discipline meets transparency. RBI wants to ensure:
- No inflated capital adequacy (by blocking unrealised profits).
- No regulatory arbitrage (by enforcing uniform asset classification).
- No hidden partnerships (through disclosures).
- No confusion in fund flows (with escrow).
For borrowers, this means clarity and protection. For lenders, this means accountability and trust.
Absolutely ✅ This will be the final and most detailed Part 3 of the blog.
Here, I’ll include:
- 50+ FAQs with humanized, study-coach answers (covering “People also ask” style from Google searches).
- Memory frameworks & mnemonics to help recall.
- One practical example of an Indian Bank + NBFC working under co-lending.
- Estabizz-style closing with wisdom quote and disclaimer.
“Education is not the learning of facts, but the training of the mind to think.” – Albert Einstein.
At Estabizz Fintech Private Limited, this is exactly our mission. The RBI Co-Lending Arrangements Directions 2025 are not just facts to memorize; they are lessons to understand and apply. To help you, we’ve built this FAQ section like a revision guide before an exam—simple, practical, and unforgettable.
FAQs on RBI Co-Lending Arrangements Directions 2025
Q1. What are the RBI Co-Lending Arrangements Directions 2025 in simple words?
They are RBI’s uniform rules telling banks, NBFCs, and financial institutions how to jointly lend in a way that’s fair, transparent, and borrower-friendly.
Q2. Why did RBI issue these Directions?
Because earlier, co-lending was like a group project without clear rules. Some lenders took all the credit, others carried all the risk, and borrowers were left confused. RBI now ensures fairness.
Q3. When do these Directions become effective?
From 1 January 2026, or earlier if an institution chooses to adopt them internally.
Q4. Who has to follow them?
All commercial banks (except RRBs, SFBs, LABs), All India Financial Institutions, and NBFCs including Housing Finance Companies.
Q5. What is the minimum retention requirement?
Each lender must retain at least 10% of every loan on its own books. This ensures accountability.
Q6. Why is the 10% rule important?
Because it keeps all lenders equally responsible. Imagine a cricket team where every player must bat at least once. No one can hide.
Q7. What must be included in the credit policy framework?
Institutions must formally add co-lending provisions in their credit policies, not treat them as side activities.
Q8. What happens if co-lending agreements are vague?
They may face RBI scrutiny. Agreements must spell out borrower selection, responsibilities, servicing, disclosures, and grievance handling.
Q9. How will borrowers benefit?
Borrowers will always know which lender is their point of contact, reducing confusion and strengthening trust.
Q10. How are loan agreements affected?
Loan agreements must clearly show roles (originator, servicer), grievance redressal, and customer protection clauses.
Q11. Can the customer interface change later?
Yes, but only with advance intimation to the borrower.
Q12. What is the Key Facts Statement (KFS) requirement?
Borrowers must receive a KFS with all CLA details, as per RBI’s April 2024 circular.
Q13. What is the PSL benefit in co-lending?
Each lender can classify its share of qualifying loans under Priority Sector Lending.
Q14. How does this support PSL targets?
Banks bring capital, NBFCs bring reach. Together, they can meet PSL obligations more effectively.
Q15. What about accounting treatment?
NBFCs must follow accounting standards but cannot count unrealised profits as capital until maturity.
Q16. Why can’t unrealised profit be counted as capital?
Because it’s like counting unhatched eggs as chickens. RBI wants realism, not inflated capital.
Q17. What is uniform borrower-level classification?
If one lender marks a borrower as NPA, all co-lenders must do the same.
Q18. How fast must this information be shared?
In real-time, or at the latest by the next working day.
Q19. Why is uniform classification important?
It avoids situations where one lender says “healthy” while another says “sick.” Everyone must agree on the borrower’s status.
Q20. What is Default Loss Guarantee (DLG)?
It’s when the originating RE covers up to 5% of loan defaults.
Q21. Is DLG compulsory?
No, it’s optional. But if offered, it must comply with RBI’s separate DLG Directions.
Q22. What are website disclosure requirements?
Institutions must list active CLA partners clearly on their websites.
Q23. What about financial statement disclosures?
They must disclose CLAs in the Notes to Accounts quarterly or annually.
Q24. How soon must loans be recorded in books?
Within 15 calendar days of disbursement.
Q25. What is the role of escrow accounts?
All disbursements and repayments must flow through one common escrow account.
Q26. Why escrow accounts?
To ensure transparency. Like one wedding envelope box, so no one secretly takes money.
Q27. Can one RE be the escrow bank?
Yes, one of the partners can act as the escrow holder.
Q28. What is appropriation of funds?
It’s the agreed method of dividing repayments between lenders from the escrow.
Q29. Who decides appropriation rules?
They must be written clearly in the co-lending agreement.
Q30. How does this framework help borrowers?
It provides a single point of contact, clear grievance system, and protection from mis-selling.
Q31. How does it help NBFCs?
NBFCs gain credibility, better funding access, and PSL support through partnerships.
Q32. How does it help banks?
Banks can use NBFC reach to serve rural and underserved segments, meeting inclusion goals.
Q33. Does this reduce credit risk?
Yes, because risks are shared fairly, and DLG covers part of defaults.
Q34. How does it ensure governance?
By mandating credit policy integration, uniform classification, and strict disclosures.
Q35. Can unsecured loans be part of co-lending?
Yes, both secured and unsecured loans can be co-lent under the framework.
Q36. Can corporate loans be included?
Yes, subject to agreement terms and disclosures.
Q37. What if REs don’t comply?
RBI may impose penalties or restrict operations.
Q38. What must institutions do before Jan 2026?
Update policies, revise agreements, set up escrow, train staff, and prepare disclosures.
Q39. How does borrower grievance work?
The loan agreement must specify the grievance redressal entity, and changes must be informed upfront.
Q40. Can NBFCs act as single borrower interface?
Yes, either bank or NBFC can be the single point of contact, as agreed.
Q41. Is borrower consent needed for co-lending?
Borrower must be fully informed through KFS and loan agreement disclosures.
Q42. Can co-lending improve financial inclusion?
Yes, especially for rural, MSME, and priority sectors.
Q43. How will technology support this framework?
Through APIs, MIS systems, real-time reporting, and digital escrow setups.
Q44. Are housing loans included?
Yes, HFCs can participate in co-lending under the Directions.
Q45. What about microfinance loans?
They can be co-lent, provided agreements and disclosures are followed.
Q46. How does this compare to earlier RBI circulars?
It consolidates and strengthens earlier guidelines, making them uniform and comprehensive.
Q47. How does this prevent mis-selling?
By ensuring borrower disclosures and KFS are mandatory, so customers know exactly who they’re dealing with.
Q48. Can both partners share servicing responsibilities?
Yes, but the borrower must always have clarity on the single interface.
Q49. Does this improve trust in the credit system?
Yes, because it removes ambiguity and builds accountability.
Q50. Will RBI monitor these arrangements?
Yes, through disclosures, reporting, and inspections.
Real-Life Example
Let’s take a hypothetical but realistic example:
Suppose State Bank of India (SBI) partners with Shriram Finance (NBFC) for a co-lending arrangement of MSME loans.
- SBI brings ₹1,000 crore capital, Shriram Finance brings borrower reach in tier-3 towns.
- Both agree that SBI will keep 80% exposure, Shriram 20%, but each must retain at least 10% on their own books.
- Borrowers in small towns apply through Shriram’s branch (customer interface).
- Loan agreements clearly disclose that Shriram is the servicing contact, but SBI is a partner lender.
- If one borrower defaults, both SBI and Shriram must classify him NPA simultaneously.
- All repayments are collected into a common escrow account with SBI, and later shared in the 80:20 ratio.
- Both institutions disclose this partnership on their websites and in Notes to Accounts.
This is how the RBI framework plays out in real life — ensuring discipline, fairness, and clarity for both lenders and borrowers.
Closing Thoughts
At Estabizz Fintech, we often tell our clients, “Compliance is not a burden; it is insurance for trust.” The RBI Co-Lending Arrangements Directions 2025 are exactly that—they insure fairness in partnerships, clarity for borrowers, and stability for the system.
As Mahatma Gandhi once said, “The best way to find yourself is to lose yourself in the service of others.” RBI’s framework is service-driven—not for lenders, not for regulators alone, but for the borrower at the center.
Disclaimer
This article is for informational purposes only. Please consult our team of professionals or any other expert before taking any action. The content here is collected from RBI circulars, press conferences, newspapers, seminars, and other media. Interpretation is done by our team; if there is any mistake, please guide us.
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