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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 applicability of the directions?

  • Digital lending arrangements shall continue to be governed by the Reserve Bank of India (Digital Lending) Directions, 2025 (MD-DLD). Provided that, any digital lending arrangement involving co-lending by the REs shall, without derogation to the MD-DLD, be guided by the directions on CLA.
  • The directions shall not apply to loans sanctioned under multiple banking, consortium lending, or syndication.

How shall the risk and revenue be shared under CLA?

  • Each RE under a CLA shall retain a minimum 10% share of the individual loans in its books.
  • Each RE shall maintain a borrower’s account individually for its respective share.
  • REs engaging in the CLA for loans eligible to be classified under priority sector lending, can claim priority sector status in respect of their share of credit under CLA.
  • All transactions (disbursements / repayments) between the REs, as well as with the borrower, shall be routed through an escrow account maintained with a bank (which could also be one of the REs involved in CLA). The agreement between the CLA partners shall clearly specify the manner of appropriation between the originating and partner REs.
  • Originating RE may provide default loss guarantee up to 5% of loans outstanding in respect of loans under CLA. Provision of such default loss guarantee shall be governed mutatis mutandis in terms of the MD-DLD.
  • NBFCs shall deduct unrealised profit under CLAs from CET 1 capital or net owned funds for meeting regulatory capital adequacy requirement till the maturity of such loans.

How shall the loans be transferred under CLA?

  • CLA shall entail an irrevocable commitment on the part of partner RE to take into its books, on back to back basis, its share of the individual loans as originated by the originating RE.
  • CLA shall ensure that the respective shares of the REs are reflected in the books of both REs without delay after disbursement by the originating RE to the borrower, in any case within 15 calendar days from the date of disbursement.
  • If the originating RE is unable to transfer the share of the exposure to the partner RE under CLA within 15 calendar days for any reason, then the loans shall remain on the books of the originating RE and can be transferred to other eligible lenders only under the provisions of Master Directions – Transfer of Loan Exposure, 2021 (MD-TLE).
  • Any subsequent transfer of loan exposures originated under CLA to third parties, or any inter-se transfer of such loan exposures between REs, shall be strictly in compliance with the provisions of MD-TLE. Such transfers to a third party, however, can be done only with the mutual consent of both the originating and partner REs.

What shall be the requirements for CIC reporting and asset classification?

  • Each RE shall report to CICs for their share of the loan account.
  • REs shall apply a borrower-level asset classification for their respective exposures to a borrower under CLA, implying that if either of the REs classifies its exposure to a borrower under CLA as SMA / NPA on account of default in the CLA exposure, the same classification shall be applicable to the exposure of the other RE to the borrower under CLA. REs shall share the relevant information in this regard on a near-real time basis, and in any case latest by end of the next working day.

What shall be the disclosure requirements?

  • The loan agreement with the borrower shall disclose the segregation of roles and responsibilities (such as sourcing, and servicing) of concerned REs, including clear identification of the entity being the single point of interface with the customer. The loan agreement shall also disclose the provisions related to customer protection, and grievance redressal mechanism.
  • All required details of CLA shall be disclosed to the concerned borrower in the Key Facts Statement (KFS).
  • REs shall prominently disclose on their website, a list of all active CLA partners.
  • REs shall also make disclosures in their financial statements, under ‘Notes to Accounts’, relating to necessary details of CLAs on an aggregate basis. The details may inter alia include quantum of CLAs, weighted average rate of interest, fees charged / paid, broad sectors in which CLA was made, performance of loans under CLA, details related to default loss guarantee, if any, etc. The disclosure shall be done on quarterly / annual basis, as applicable to the concerned REs.

From when shall the directions be applicable?

The directions shall come into force from January 1, 2026, or from any earlier date as decided by a RE as per its internal policy. 


References

Reserve Bank of India. (2025, August 06). 'Reserve Bank of India (Co-Lending Arrangements) Directions, 2025'. Retrieved from https://www.rbi.org.in/Scripts/NotificationUser.aspx?Id=12888&Mode=0


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