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Co-Lending Arrangements (CLAs)

Reserve Bank of India (RBI) has issued directions on co-lending arrangements which will replace the existing guidelines on co-lending by banks and Non-Banking Financial Companies (NBFCs) to priority sector. What is Co-Lending Arrangement (CLA)? Co-Lending Arrangement (CLA) refers to an arrangement, formalised through an ex-ante agreement, between a regulated entity (RE) which is originating the loans (‘originating RE’) and another RE which is co-lending (‘partner RE’), to jointly fund a portfolio of loans, comprising of either secured or unsecured loans, in a pre-agreed proportion, involving revenue and risk sharing. To whom shall the directions be applicable? The directions shall be applicable to CLAs entered into by the following REs – Commercial Banks (excluding Small Finance Banks, Local Area Banks and Regional Rural Banks) All-India Financial Institutions Non-Banking Financial Companies (including Housing Finance Companies) Which lending arrangements are exempt from the applicabil...

RBI’s Monetary Policy (August 06, 2025): In A Nutshell

The bi-monthly monetary policy of Reserve Bank of India (RBI) was announced on August 06, 2025. Here are some of the highlights of the monetary policy announcement. Rates Change Rate Policy repo rate Unchanged 5.50% Standing deposit facility (SDF) rate 5.25% Marginal standing facility (MSF) rate 5.75% Bank rate 5.75% Monetary policy stance Monetary policy stance unchanged as ‘neutral’. Domestic Economy Real GDP growth for 2025-26 is projected at 6.5%. CPI headline inflation declined for the eighth consecutive month to a 77-month low (since January 2019) of 2.1% in June, driven primarily by a sharp decline in food inflation. Food inflation recorded its first negative print since February 2019 at (-) 0.2% in June. CPI inflation for 2025-26 is projected at 3.1%. India’s current account deficit (CAD) moderated to 0.6% of GDP in 2024-25 from 0.7% of GDP in 2023-24 due to robust services exports and strong remittances receipts despite higher merchandise trade deficit. As on Augus...

Investment in Alternative Investment Funds (AIFs)

Reserve Bank of India (RBI) has issued directions for investment in Alternative Investment Funds (AIFs) which will replace the existing guidelines . To whom shall the directions be applicable? The directions shall be applicable to investments by the following regulated entities (REs) in units of AIF Schemes – Commercial Banks (including Small Finance Banks, Local Area Banks and Regional Rural Banks) Primary (Urban) Co-operative Banks / State Co-operative Banks / Central Co-operative Banks All-India Financial Institutions Non-Banking Financial Companies (including Housing Finance Companies) What shall be the limits for investment in AIF schemes? No RE shall individually contribute more than 10% of the corpus of an AIF Scheme. Collective contribution by all REs in any AIF Scheme shall not be more than 20% of the corpus of that scheme. Outstanding investments or commitments of a RE, made with prior approval from RBI under the provisions of Master Direction – Reserve Bank of India (Financi...

Pre-payment Charges on Loans

Reserve Bank of India (RBI) has issued directions on pre-payment charges on loans. What issues were observed by RBI during supervisory reviews? Divergent practices were observed amongst Regulated Entities (REs) with regard to levy of pre-payment charges in case of loans sanctioned to Micro and Small Enterprises (MSEs) which lead to customer grievances and disputes. Certain REs were found to include restrictive clauses in loan contracts / agreements to deter borrowers from switching over to another lender, either for availing lower rates of interest or better terms of service. To whom shall the directions be applicable? The directions shall apply to all commercial banks (excluding payments banks), co-operative banks, Non-Banking Financial Companies (NBFCs) and All India Financial Institutions (AIFIs). To which loans shall the direction be applicable? The directions shall be applicable to all floating rate loans and advances sanctioned or renewed on or after January 01, 2026. Which ...

Due Diligence of AePS Touchpoint Operators

Reserve Bank of India (RBI) has issued directions on due diligence of Aadhaar Enabled Payment System (AePS) touchpoint operators. What is Aadhaar Enabled Payment System (AePS)? Aadhaar Enabled Payment System (AePS) is a payment system in which transactions are enabled through Aadhaar number and biometrics / OTP authentication providing financial services such as cash withdrawal, cash deposit, fund transfer, and non-financial services such as mini statement and balance enquiry, etc. AePS is a payment system operated by National Payment Corporation of India (NPCI) that facilitates interoperable transactions using Aadhaar enabled authentication. What is AePS touchpoint? AePS touchpoint is the terminal deployed by acquirer banks to facilitate AePS transactions, which shall include both mobile and fixed points. Who is AePS Touchpoint Operator (ATO)? AePS Touchpoint Operator (ATO) is the individual onboarded by the acquiring bank who operates the AePS touchpoint. What is the rationale b...

Conduct of Government Business by Agency Banks and payment of agency commission

Reserve Bank of India (RBI) has updated the guidelines on conduct of government business by agency banks and payment of agency commission. Why agency banks are paid commission? RBI carries out the general banking business of the Central and State Governments through its own offices and through the offices of the agency banks appointed under Section 45 of the RBI Act, 1934, by mutual agreement. RBI pays agency commission to the agency banks for the government business handled by them. Which government transactions are eligible for agency commission? Transactions relating to the following government business undertaken by agency banks are eligible for agency commission paid by RBI – Revenue receipts and payments on behalf of the Central / State Governments. Pension payments in respect of Central / State Governments. Which government transactions are not eligible for agency commission? The following transactions are not eligible for agency commission – Short term / long term bo...

Stripping / Reconstitution in Government Securities

Reserve Bank of India (RBI) has recently issued guidelines on stripping / reconstitution in State Government Securities. This is in addition to stripping / reconstitution already permitted in eligible Central Government dated securities. What is Separate Trading of Registered Interest and Principal of Securities (STRIPS)? Separate Trading of Registered Interest and Principal of Securities (STRIPS) are created by way of separating the cash flows associated with a regular Government Security i.e. each semi-annual coupon payment and the final principal payment to be received from the issuer, into separate securities. For example, when ₹100 of the 8.60% GS 2028 is stripped, each cash flow of coupon (₹4.30 each half year) will become a coupon STRIP (maturing on the respective coupon dates) and the principal payment (₹100 at maturity) will become a principal STRIP (maturing on the redemption date of the security). These cash flows are traded separately as independent securities in the second...

Lending against Gold and Silver collateral

Reserve Bank of India (RBI) has issued directions on lending against the collateral of gold and silver. To whom are the directions applicable? The directions are applicable to the following regulated entities (REs) – Commercial Banks (including Small Finance Banks, Local Area Banks and Regional Rural Banks, but excluding Payments Banks). Primary (Urban) Co-operative Banks (UCBs) & Rural Co-operative Banks (RCBs), i.e., State Co-operative Banks (StCBs) and Central Co-operative Banks (CCBs). Non-Banking Financial Companies (NBFCs), including Housing Finance Companies (HFCs). Which loans are covered under the directions? The directions shall apply to all loans offered by an RE for the purpose of consumption or income generation (including farm credit) where eligible gold or silver collateral is accepted as a collateral security. What is eligible collateral? Eligible collateral means the collateral of jewellery, ornaments or coins made of gold or silver. A lender shall not grant any ad...