RBI’s Co-Lending Shake-Up: What Changes for Lenders from 2026

In a move that could reshape the contours of collaborative lending in India, the Reserve Bank of India has overhauled its co-lending framework, merging earlier expansions beyond priority sector lending (PSL) into a single, uniform rulebook and raising the bar on operational discipline and transparency.

The Reserve Bank of India (Co-Lending Arrangements) Directions, 2025, released on August 6, will take effect from January 1, 2026. It replaces the 2020 PSL-focused framework and incorporate recent changes, creating for the first time a common structure for all loan types — secured and unsecured — across a wider range of players.

Co-lending, which once sat largely within PSL mandates, has been expanding in scope since April 2025, when the RBI’s digital lending and default loss guarantee (DLG) norms opened the door for non-PSL credit. 

The August directions formalise that shift, covering arrangements between commercial banks (excluding small finance banks, local area banks and regional rural banks) and NBFCs, including housing finance companies.

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By also spelling out what co-lending is not — multiple banking, consortium lending, and syndication — the RBI has removed ambiguity that lenders said often slowed decision-making.

Clarity, however, is only one part of the story. The new rules bring a uniform minimum exposure requirement that each co-lender must keep at least 10% of every loan on its own books. For NBFCs, that’s a notable easing from the earlier 20 per cent rule, potentially freeing up capacity for mid- and smaller lenders that struggle with funding constraints.

“This 'skin in the game' principle is designed to ensure that both the originating and partner REs (lenders) have a material stake in the loan's performance, thereby discouraging a mere 'sourcing agent' model,” said Ram Rastogi, Chairman of the Governance Council at FACE.

Moreover, under the revised guidelines, loan agreements between co-lenders will need to be far more granular, spelling out borrower criteria, due diligence, data-sharing, fee structures, grievance redressal, and customer service roles. 

The discipline extends to how and when exposures change hands. Partner lenders must take their share of the loan within 15 calendar days of disbursement by the originating lender. In case the deadline is missed, the originating lender keeps the full exposure. 

However, for co-lending institutions following the co-lending model 2 (CLM-2), “this will heighten the need for technology integration and alignment of credit policies between the co-lending partners, potentially slowing down co-lending volumes of NBFC in the near term,” says Rounak Agarwal, Associate Director, Crisil Ratings.

For those following CLM-1, “We see no major hiccup for players who are following CLM 1 as there is no material change in their operating guidelines,” he adds.

For the uninitiated, there are two co-lending models currently known as CLM 1 and CLM 2. While CLM 1 calls for joint contribution of credit at the loan facility level by both lenders, under CLM 2, co-lending banks typically take their share of the individual loans on a back-to-back basis from partners. This means that the bank will reimburse its share of loans to partner NBFCs post initial disbursement.

One of the headline changes in the revised guidelines is the formal inclusion of DLG in co-lending. Originating lenders can now offer up to 5 per cent DLG on outstanding loans, extending a provision that previously applied only in digital lending. For NBFCs, unrealised profits from such arrangements have to be deducted from Common Equity Tier 1 (CET1) capital or net owned funds until the loan matures.

“By formally bringing Default Loss Guarantee (DLG) under the co-lending umbrella and expanding eligibility beyond priority sector lending, it brings greater clarity and unlocks scale for the industry,” says Vipul Mahajan, Chief Business Officer at digital lending platform Yubi.

However, the aspect of lead or initiating bank offering the default guarantee up to 5 per cent to other co-lenders needs further clarity around the circumstances under which such a guarantee will be extended.

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"This should certainly make life easier for large corporates and co-lending is likely to eventually lead to an uptick in bank lending,” said Arvind Arya, former Executive Vice President at Axis Bank.

In the revised guidelines, transparency is a recurring theme. Lenders must publicly list their co-lending partners on their websites and disclose aggregate data in financial statements — including quantum of loans, weighted average interest rates, fees, sectors served, performance metrics, and DLG details — quarterly or annually, as applicable.

With NBFC co-lending assets under management crossing Rs 1.1 lakh crore as of March 31, 2025, according to CRISIL, the sector’s size makes these disclosures more than a compliance exercise; they’re a market signal.

While the revised guidelines may increase the overall cost for lenders in managing compliance and technology integration, along with initial complexity in operations, for the RBI, the intent is clear: use co-lending to extend credit reach while ensuring risk is shared responsibly. Uniform exposure norms, formalised DLG caps, and real-time risk flagging aim to prevent one partner from being overexposed or blindsided.

Rastogi believes these measures ensure “growth is coupled with responsible risk-sharing, fostering stability across the system.”

In the short term, lenders may channel more business through direct assignment as they adapt systems to the new requirements. Over time, though, the RBI is betting that a single, disciplined rulebook will create the foundation for a more transparent, scalable, and inclusive co-lending market.