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.
