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RBI tightens Co-lending norms to improve risk sharing and Transparency | Current Affairs | Vision IAS
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RBI tightens Co-lending norms to improve risk sharing and Transparency

Posted 07 Aug 2025

2 min read

Recently, RBI issued revised directions for Co-lending Arrangements (CLA) between banks and Non-bank Financial Companies (NBFCs) under various provisions of the Banking Regulation Act (1949), Reserve Bank of India Act (1934), and National Housing Bank Act (1987).

What is co-lending?

  • Under CLAs, Regulated entities (REs) can enter into a lending arrangement with other REs for extension of credit to the borrowers, subject to compliance with the extant prudential regulations.

Key highlights of the revised Directions

  • Minimum share: Each RE to retain a minimum 10% share of the loans.
  • Priority Sector Lending (PSL) status: Each lender can claim PSL status for its share under co-lending, if the loan qualifies as priority sector.
  • Uniform asset classification system: If one lender tags a loan as Non- performing Asset (NPA), other co-lenders must do the same.
  • Blended interest rate: Interest rate charged to borrowers will be calculated based on the weighted average of each RE’s internal rate, proportionate to their funding contribution.

Significance of co lending 

  • For Banks: Increased penetration in the remote regions due to NBFCs last mile connectivity, enhanced compliance with PSL targets, etc.
  • For NBFCs: Shared credit risk, enhanced access to cheaper capital, etc.
  • For Consumers: Access to cheaper credit due to competitive interest rates, better customization as NBFCs often offer flexible loan structures suited to local market realities, etc.
  • Tags :
  • Banking Regulation Act, 1949
  • Co-lending
  • Priority Sector Lending
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