New RBI co-lending rulebook tightens risk-sharing, reporting for co-lending, scraps double KYC
RBI's final directions extend to all commercial banks (excluding small finance, regional rural, and local area banks), all-India financial institutions, and NBFCs, including housing finance companies.
The Reserve Bank of India has published the first stand-alone directions for co-lending, laying down common rules for banks and non-bank finance companies that jointly originate loans. The 2025 Directions take effect on 1 January 2026, though lenders may adopt them sooner.
When the draft was issued in May, industry players warned that some provisions would raise costs and slow adoption. The final version deletes one of those flashpoints: each partner no longer has to repeat customer-identification checks. Instead, the partner NBFC or bank “may rely upon the originating RE for the Customer Identification Process”.
Mandar Kagade, founder of policy advisory Black Dot, who had lobbied for that change, wrote on LinkedIn that duplication of KYC “was a key inhibitor to proliferating co-lending”.
The regulator has doubled down on loss-sharing. All regulated entities entering co-lending deals must retain at least 10% of each individual loan on their books. The originating lender may also offer a default loss guarantee of up to 5% of the outstanding portfolio, but no more. The rules aim to curb excessive offloading of credit risk and align incentives between originating and partner lenders.
Crucially, the RBI has tightened reporting obligations. Each regulated entity must report its share of loan exposures to credit bureaus individually, apply borrower-level asset classification (so a default to one counts as a default to all), and disclose all active co-lending partners on their website.
The RBI has also effectively started a two-week timer on every co-lending draw-down: once the originating bank releases a loan, the partner NBFC (or other regulated entity) must record its agreed slice on its own balance sheet.
"The revised guidelines expand co-lending beyond priority sector loans and lay down clear rules on borrower protection, interest rates, disclosures, and risk-sharing, etc," industry body Fintech Association for Consumer Empowerment (FACE) said in a statement.
"Effective January 1, 2026, they aim to bring further clarity, standardisation, and stronger consumer safeguards in co-lending frameworks," the statement added.
The final directions extend to all commercial banks (excluding small finance, regional rural, and local area banks), all-India financial institutions, and NBFCs, including housing finance companies. Digital lending arrangements that involve co-lending will also need to comply with this framework, in addition to digital lending norms notified separately.
Edited by Jyoti Narayan