RBI to expand ambit of co-lending to enhance credit flow

IANS April 9, 2025 259 views

The Reserve Bank of India is set to revolutionize its co-lending guidelines, expanding beyond traditional priority sector limitations. Governor Sanjay Malhotra announced a more inclusive framework that will allow multiple regulated entities to collaborate on diverse loan types. This strategic move aims to enhance credit accessibility and facilitate more flexible lending arrangements. The proposed changes represent a significant step towards modernizing India's financial intermediation ecosystem.

"To exploit the huge potential of such lending arrangements, it is proposed to extend them to all regulated entities and to all loans" - Sanjay Malhotra, RBI Governor
RBI to expand ambit of co-lending to enhance credit flow
New Delhi, April 9: Reserve Bank of India (RBI) Governor Sanjay Malhotra on Wednesday announced a major proposal to liberalise the RBI's co-lending guidelines for banks and NBFCs to expand their ambit beyond priority sector lending to which they are currently restricted.

Key Points

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RBI plans inclusive co-lending framework across all regulated entities

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Expanding beyond priority sector lending restrictions

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Sharing risks and rewards between multiple lenders

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Harmonizing non-fund based financial facilities

The present framework limits co-lending to partnerships between banks and non-banking financial companies (NBFCs) to priority sector lending such as agriculture, micro-enterprises and loans to weaker sections.

The RBI now plans to introduce a more inclusive framework that to include all regulated entities and all types of loans.

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 co-lending arrangements among regulated entities. The draft guidelines are being issued for public comments, according to an RBI statement.

"To exploit the huge potential of such lending arrangements, it is proposed to extend them to all regulated entities and to all loans - priority sector or otherwise," Malhotra said while announcing the monetary policy review.

Co-lending involves a partnership between a primary lender, typically a bank, and a co-lender which can be another bank, NBFC, or fintech company. Both lenders contribute to the loan amount, sharing the financial burden and potential returns.

The risks and rewards associated with the loan are also shared between the lenders, based on their contribution to the loan.

The RBI has also decided to harmonise and consolidate guidelines covering non-fund based (NFB) facilities like Guarantees, Letters of Credit, Co-Acceptances etc. all regulated entities as they play a significant role in facilitating effective credit intermediation, besides enabling seamless business transactions, including trade transactions.

"The revised guidelines include a review of instructions on issuance of partial credit enhancement by regulated entities, with a view to, inter alia, broadening funding sources for infrastructure financing. The draft guidelines in this regard are being issued for public comments," an RBI statement said.

Reader Comments

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Priya K.
This is a great move by RBI! Expanding co-lending will help so many small businesses get access to credit. Especially with fintechs now being included, the process should become more efficient. 👏
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Rahul S.
While I appreciate the intent, I hope RBI puts strong safeguards in place. More lenders involved could mean more confusion for borrowers if things go wrong. The risk-sharing mechanism needs to be crystal clear.
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Anjali M.
Finally! The current restrictions made no sense in today's digital lending landscape. This will help NBFCs scale up faster and serve more customers. Big win for financial inclusion!
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Sanjay T.
Interesting development. I wonder how this will affect interest rates for end borrowers. More competition could drive rates down, but operational costs might offset that benefit.
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Neha P.
The inclusion of fintechs is the most exciting part! Traditional banks can learn so much from their digital-first approach. This could really modernize India's lending ecosystem.
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Vikram D.
I'm cautiously optimistic. The draft guidelines need to clearly define accountability - who does the borrower approach if there's an issue? The RBI should mandate a single point of contact.

We welcome thoughtful discussions from our readers. Please keep comments respectful and on-topic.

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Tags:
RBI Sanjay Malhotra Co-Lending Banking Reform Financial Inclusion NBFC
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