RBI will issue draft guidelines for public comments
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SANJAY SHARMA

In bid to give a fillip to co-lending, RBI Governor Sanjay Malhotra said it will not be restricted just to arrangements between banks and non-banking finance companies (NBFCs) for priority sector loans, but to all forms of arrangements among lenders and all types of loans.

Malhotra noted that the extant guidelines on co-lending are applicable only to arrangements between banks and NBFCs for priority sector loans such as agriculture, micro, small and medium enterprises (MSMEs), education, housing, among others.

In light of the evolution of such lending practices and the potential of such co-lending arrangements (CLAs) in catering to the credit needs of a wider segment in a sustainable manner, the RBI has decided to expand the scope for co-lending and issue a generic regulatory framework for all forms of CLAs among Regulated Entities (lenders), he said. In this regard, the RBI will issue draft guidelines for public comments.

Earlier, it is only the banks and the NBFCs which can enter into this (co-lending) arrangement. Now, two banks together can also enter into this arrangement.

Benefit all

“The benefit of co-lending is that the borrowers get the benefit of lower interest rates because the banks’ have funds at lower rates and…the reach is provided by the NBFCs. So, it’s a win-win, primarily for the banks and the NBFCs. So, we are expanding it,” Malhotra said.

The primary focus of CLA scheme is to improve the flow of credit to the unserved and underserved sector of the economy and make available funds to the ultimate beneficiary at an affordable cost, considering the lower cost of funds from banks and greater reach of the NBFCs.

Huge opportunity

Sudipta Roy, Managing Director & CEO, L&T Finance, observed that extending co-lending rules to all regulated entities and all loans, could prove to be a game changer for the domestic financial sector overtime. It presents a huge opportunity for NBFCs to build on their niche strengths and partnerships towards wider credit dissemination.

Kishore Lodha, CFO, UGRO Capital, noted that initially, when the RBI guidelines on co-lending were introduced, they applied only to Priority Sector Lending (PSL) loans. However, on a case-by-case basis, the RBI was granting approvals to banks for co-lending in non-PSL segments.

Referring to recent studies, he said about 75 per cent 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, with the RBI broadening the framework and making it applicable to all regulated entities and for all products, any bank can now partner with any NBFC and include their entire range of products under the co-lending model, opined Lodha.

“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 than later,” he said.

Published on April 9, 2025