Revised Directions on Co-Lending Arrangements (CLA)
The Reserve Bank of India (RBI) has issued revised directions on co-lending arrangements to offer regulatory clarity and address prudential and conduct-related aspects. This initiative aims to streamline lending practices between regulated entities (REs), such as banks, NBFCs, and All-India Financial Institutions.
Key Features and Guidelines
- REs can enter into lending arrangements with other REs to extend credit to borrowers in compliance with existing prudential regulations.
- Co-Lending Arrangement (CLA):
- An agreement between an originating RE and a co-lending RE to jointly fund a loan portfolio in a pre-determined proportion.
- Involves shared revenue and risk.
- REs must retain a minimum of 10% share of individual loans in their books.
- Credit policies of REs must incorporate:
- Provisions for CLAs.
- Internal limits for lending portfolio proportions under CLAs.
- Target borrower segments and partner due diligence.
- Customer service and grievance redressal mechanisms.
- Interest rates and fees/charges on loans must align with contractual agreements, adhering to regulatory norms.
- All transactions between REs and with borrowers should be managed through an escrow account maintained with a bank.
Implementation Timeline
The directions will be effective from January 1, 2026, or earlier, based on the internal policy of an RE.