RBI Issues Draft Directions on Co-Lending Arrangements, 2025

On April 9, 2025, the Reserve Bank of India (“RBI”) released the Draft Reserve Bank of India (Co-Lending Arrangements) Directions, 2025 (accessible [here]), proposing an expanded regulatory framework for co-lending arrangements (“CLAs”) beyond the existing Priority Sector Lending (“PSL”) model.

The draft guidelines apply to commercial banks (excluding Small Finance Banks, Regional Rural Banks, and Local Area Banks), All-India Financial Institutions, and all NBFCs, including Housing Finance Companies (collectively, “Permitted REs”). CLAs are defined as formal arrangements between REs involving joint origination, risk sharing, and loan servicing. The draft explicitly prohibits co-lending with non-REs and mandates detailed internal documentation and disclosures—such as blended interest rate structures, borrower communication via Key Fact Statements, and publication of relevant details on REs’ websites.

Each loan under a CLA must be jointly disbursed from the outset, governed by a non-discretionary, pre-agreed Inter-Creditor Agreement. Permitted REs are required to ensure compliance through audit mechanisms and establish business continuity plans to safeguard borrower servicing. This structure contrasts with the earlier PSL framework, where banks had discretion over assuming individual loan exposures.

Additional key provisions include routing disbursements through an escrow account, separate KYC compliance by each RE, and the elimination of the earlier 20% minimum risk share requirement for NBFCs. Notably, the draft allows the use of Default Loss Guarantees (“DLGs”) of up to 5% of the outstanding loan value—extending the scope of the June 2023 DLG Guidelines, which were previously applicable only to digital lending.

Stakeholders are invited to submit their feedback on the Draft CLA Directions by May 12, 2025.