The RBI's Revised Co-lending Directions: Boosting Transparency and Growth for NBFCs
Enhanced Co-lending Guidelines from the Reserve Bank of India to Bolster Transparency in Banks' Operations, According to Report
The Reserve Bank of India (RBI) has recently revised its co-lending directions, set to take effect from January 1, 2026. These changes present significant opportunities for growth and increased transparency for Non-Banking Financial Companies (NBFCs).
Long-term Growth Opportunities for NBFCs
The revised directions facilitate joint lending between banks and NBFCs, fostering deeper collaboration and expanding NBFCs' lending capabilities. This collaboration can lead to better risk management and increased access to low-cost funds1.
The revised norms aim to broaden credit access, particularly in the retail and mid-sized loan segments. This expansion can help NBFCs tap into previously underserved markets and increase their market share2.
The reduction in the minimum loan retention requirement from 20% to 10% benefits mid-sized and smaller NBFCs by freeing up more capital for lending activities. This can enhance their ability to participate in co-lending arrangements, alleviating funding constraints1.
Impact on Transparency and Risk Sharing
The revised co-lending directions are designed to enhance transparency and risk sharing in the lending space. The introduction of a uniform asset classification ensures consistency in evaluating loan performance, which helps in better risk management and clearer communication among lenders4.
The requirement for a blended interest rate, calculated based on the weighted average of each lender’s internal rate, promotes transparency in pricing for borrowers4. Routing all transactions through an escrow account increases transparency and ensures that funds are managed securely, reducing the risk of mismanagement4.
The cap on default loss guarantees at 5% encourages more prudent lending practices and better risk sharing among lenders4. Mandatory upfront disclosures and detailed loan agreements enhance transparency by clearly outlining the roles and responsibilities of each lending partner, ensuring that all parties are aware of their obligations4.
These revised directions are expected to particularly benefit mid- and smaller-sized NBFCs, extending growth opportunities over the long term6. The regulatory oversight will now extend to all forms of loans, not just priority sector loans7.
As of March 31, 2025, the co-lending assets under management of NBFCs are estimated to have crossed Rs 1.1 lakh crore8. The revised directions, as noted by Malvika Bhotika, Director at Crisil Ratings, are expected to increase transparency in the co-lending space9.
The provision of default loss guarantees up to 5% of loans will help broaden the sharing of risk and rewards among co-lending partners4. This change, along with the other revisions, is a step towards a more transparent and collaborative lending space, benefiting all stakeholders7. The directions will become applicable from January 1, 2026, or from any earlier date as decided by an RE as per its internal policy10.
Read also:
- Stone mining has transformed the once renowned 'Sada Pathor' into a desolate, post-apocalyptic landscape.
- In the Heart of Soho, Manhattan, a New Brewery Emerges Underground
- Financial regulatory body OCC imposes Anti-Money Laundering (AML) disciplinary action against Wells Fargo.
- Revised Tax Policy for Motor Vehicles Pushed for Greater Eco-friendliness, Suggested by Court Auditors
