This new framework aims to govern all forms of co-lending arrangements among regulated entities.
The Reserve Bank of India (RBI) announced a significant shift in its approach to co-lending arrangements (CLA). Until now, co-lending guidelines applied exclusively to partnerships between banks and NBFCs for priority sector lending. Recognising the evolving landscape of credit delivery and the growing role of diverse lending partnerships, the RBI has proposed a broader, more inclusive regulatory framework. This new framework aims to govern all forms of co-lending arrangements among regulated entities (REs), ensuring sustainable credit flow to a wider borrower base while maintaining systemic stability and oversight.
The Statement on Developmental and Regulatory Policies, issued on April 9, 2025, stated, "The extant guidelines on co-lending are applicable only to arrangements between banks and NBFCs for priority sector loans. In light of the evolution of such lending practices, and the potential of such lending arrangements in catering to the credit needs of a wider segment in a sustainable manner, it has been decided to expand the scope for co-lending and issue a generic regulatory framework for all forms of colending arrangements among REs."
"RBI’s recent framework on co-lending is the need of the hour," said Yashoraj Tyagi, CEO of CASHe. "With the growing credit demand and now the reduced repo rate, to address the demand, the lending industry will have to come forward collectively (banks, NBFCs, fintech enablers) and pave the way for more diverse partnerships between traditional lenders and agile, technology-driven platforms," said Tyagi.
This will enable better capital deployment, more efficient risk sharing, and ultimately, greater credit inclusion, especially for India’s aspirational new-to-credit segments. The co-lending model has already shown promise in combining the digital reach and innovation of fintechs with the financial muscle of larger institutions. A wider regulatory framework will now provide the clarity and confidence needed to scale such partnerships further.
Kishora Lodha, CFO of UGRO Capital, said, "Initially when the RBI guidelines were introduced, they applied only to PSL (Priority Sector Lending) loans. However, on a case-by-case basis, the RBI was granting approvals to banks for co-lending in non-PSL segments. As per recent studies, about 75% of the co-lending volumes handled by banks are in non-PSL loans. However, these were based on approvals granted by the RBI to specific banks that had sought permission."
Now, the RBI has broadened the framework and made it applicable to all regulated entities and for all products. "This means any bank can now partner with any NBFC and include their entire range of products under the co-lending model. This will significantly broaden the scope of co-lending, and we will see banks scaling up volumes far beyond current levels. Though the process of forming partnerships and executing co-lending agreements remains quite lengthy and requires considerable effort, it is expected to gain momentum sooner rather than later," said Lodha.
Sudipta Roy, Managing Director & CEO at L&T Finance Ltd., “Extending co-lending rules to all regulated entities and all loans, could prove to be a game changer for the domestic financial sector over time. It presents a huge opportunity for NBFCs to build on their niche strengths and partnerships, towards wider credit dissemination.”
Additionally, Kapil Garg, MD of Hindon Mercantile, said, "What makes this move even more important is that it’s no longer limited to specific areas. Lenders can now co-finance a wide variety of loans whether it’s for small businesses or personal needs depending on what the market demands. This makes it quicker for borrowers to get credit, and it also helps lenders by allowing them to share the risks involved."
Thus, this shift shows where the lending system is heading: towards more openness, more use of technology, and more partnerships. It helps build a financial system that can better meet the needs of borrowers, especially as the demand for credit keeps rising in India. "The flexibility of this new framework can really improve how credit is given, making it faster, easier to access, and better suited to what people actually need," said Garg
This MPC policy appears to be a continuation of the various measures taken by the RBI over the last 4–5 months. Durable liquidity has been returning to the system over the past fortnight, thanks to these measures by the RBI.
Lodha said, "The rate cut is a welcome move that will help ease the high-interest-rate regime we have experienced over the past three years, although the transmission of this rate cut needs to be monitored, as banks are under pressure while passing on the benefits to all customer segments due to higher borrowing and operational costs. Making co-lending arrangements applicable to all regulated entities, rather than limiting them to PSL loans, will significantly boost volumes in co-lending."
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