CareEdge Ratings has released its latest analysis on the Reserve Bank of India (Co-Lending Arrangements) Directions, 2025, a landmark regulatory update that will come into effect from January 1, 2026.
The new framework marks a decisive shift from the earlier November 2020 circular on co-lending for priority sectors, expanding the scope to cover all loan segments, both secured and unsecured. By broadening its applicability beyond priority sector lending, the RBI aims to formalise co-lending as a mainstream credit delivery mechanism to strengthen financial inclusion and systemic credit growth.
Key Highlights of the Directions
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Minimum Retention Share: Each Regulated Entity (RE) must retain at least 10% of individual loans, reduced from the earlier 20%, encouraging wider adoption.
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Standardisation of Models: The framework enforces Co-Lending Model 1 (CLM1) with a 15-day transfer rule, implicitly discouraging CLM2 and aligning with Master Directions – Transfer of Loan Exposures (MD-TLE).
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Default Loss Guarantee (DLG): Now formally recognised, capped at 5%, and governed by Digital Lending Directions (MD-DLD) to enhance prudential oversight.
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Borrower-Level Asset Classification: If one RE flags a borrower as NPA/SMA, the classification applies across all partners, ensuring real-time synchronisation of credit risk.
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Escrow Mandate: All disbursements and repayments between REs and borrowers must route through escrow accounts, enhancing fund flow transparency.
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Disclosures: REs must prominently display active co-lending partners on their websites and include aggregate disclosures in financial statements, improving market transparency.
Strategic Implications
CareEdge highlights that the Directions signal a structural evolution in India’s credit ecosystem—from a narrow, sector-specific approach to a comprehensive, standardised, and transparent framework. The guidelines are expected to:
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Reduce capital requirements.
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Deepen credit penetration across segments.
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Strengthen resilience through uniform risk management.
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Enhance borrower protection and market discipline.
The deferred effective date of January 1, 2026, provides REs sufficient time to align their systems, agreements, and operational workflows with the new requirements.
Full Report: Reserve_Bank_of_India_Co-Lending_Arrangements_Directions_2025