Revised Regulations for Co-Lending between Banks and NBFCs

The Reserve Bank of India (RBI) has issued revised guidelines for co-lending between banks and non-banking financial companies (NBFCs), effective from January 1.

Key Provisions of the Regulations

• Retention Requirement: All regulated entities (REs) engaged in co-lending must retain at least 10% of each individual loan on their books.
• Default Loss Guarantee: The loan-originating entity is allowed to provide a default loss guarantee of up to 5% of the loans outstanding under the co-lending agreement.
• Credit Policy Requirements: REs must incorporate provisions relating to co-lending arrangements (CLA) in their credit policies, covering aspects like internal limits, target borrower segments, due diligence, and grievance redressal mechanisms.

Operational Guidelines

• Policy Framework: Entities must frame specific policies for co-lending arrangements, addressing internal limits, grievance redressal, due diligence, fees, target borrowers, and other conditions.
• Information Disclosure: Entities must provide upfront disclosures on the roles of involved entities.
• Asset Classification: If a loan is classified as a Special Mention Account (SMA) or non-performing asset (NPA) by one lender, the co-lending partner must apply the same classification for its exposure to that borrower.

Information Sharing and Loan Transfer

• Information Sharing: REs must establish a robust mechanism for sharing relevant borrower-level asset classification information on a near real-time basis, but no later than the end of the next working day.
• Loan Transfer: Any subsequent transfer of loans under a co-lending arrangement to third parties must adhere to the norms on the transfer of loan exposures and can only occur with mutual consent from both the originating and partner REs.