The RBI co-lending directions 2025, formally the RBI Co-Lending Arrangements Directions, 2025, set one framework for regulated lenders that lend jointly to the same borrower. They apply from 1 January 2026, require each lender to keep at least 10% of every loan, cap any default loss guarantee at 5% of outstanding loans, and require both lenders to classify the borrower in step.
Key Takeaways
- The 2025 directions apply to co-lending of any kind, extending well beyond priority sector lending.
- Each co-lending partner must keep at least 10% of every loan, down from the earlier 20% for the originating non-bank lender.
- A default loss guarantee is capped at 5% of outstanding loans, and servicing fees cannot be subordinated, waived or deferred.
- The discretionary model, where the partner picked loans after origination, is gone. Selective purchases now fall under the transfer of loan exposures rules.
- Asset classification must match across both lenders, with information shared by the next working day, and LOA (Loan Origination Assistant) keeps both partners on one loan record with every decision logged.
What Is Co-Lending
Co-lending is an arrangement in which two regulated lenders fund the same loan in agreed shares. Typically a non-bank lender with reach into a customer segment originates the loan and services it, while a bank with a lower cost of funds provides most of the capital.
The borrower sees one loan and one relationship. Behind it, two balance sheets carry the exposure in the agreed proportion. The model grew under an RBI framework focused on priority sector lending, and the 2025 directions now replace that framework.
For the non-bank lender, co-lending adds lending capacity without holding the whole loan on its own balance sheet. For the bank, it offers reach into borrowers it would struggle to find and assess alone. The borrower gains access to credit priced with part of the bank's lower cost of funds.
LOA, the Loan Origination Assistant for banks and NBFCs, lets both partners work one file under shared, enforceable rules.
What Changed In The RBI Co-Lending Directions 2025
- Wider scope. The directions apply to co-lending of all kinds, extending well beyond priority sector loans.
- Effective date. They take effect from 1 January 2026, with earlier adoption permitted.
- Minimum retention. Each partner must retain at least 10% of each loan. Earlier, the originating non-bank lender had to keep 20%.
- Default loss guarantee. The originating lender may provide a guarantee of up to 5% of the outstanding loans in the arrangement.
- No discretionary model. Arrangements in which the partner chose loans after origination are discontinued. Selective purchases must follow the transfer of loan exposures directions.
- Servicing fees. Fees cannot be subordinated, waived or deferred as a hidden form of credit support.
The changes follow a clear logic. Genuine co-lending means both lenders share the risk of every loan from the start. Anything that lets one lender pick loans after the fact, or quietly absorb more of the loss than agreed, is treated as something else and regulated under the rules written for it.
In November 2025 the RBI consolidated its rules into one set of directions for each type of lender. The co-lending rules now sit in Part B of the Transfer and Distribution of Credit Risk Directions, 2025, issued separately for commercial banks, NBFCs and other regulated lenders. The figures in this checklist come from the co-lending directions issued in August 2025.
The Old And New Frameworks At A Glance
| Area | Earlier Framework | 2025 Directions |
|---|---|---|
| Scope | Priority sector lending | Co-lending of any kind by regulated lenders |
| Retention | 20% by the originating non-bank lender | At least 10% by each partner |
| Loss guarantee | Not set out in the same way | Capped at 5% of outstanding loans |
| Discretionary selection | Permitted under the second model | Discontinued; moved to transfer of loan exposures |
| Asset classification | Handled separately by each lender | Synchronised at borrower level, shared by next working day |
The effect is to treat co-lending as a genuine joint loan with shared risk, and to push anything that looks like a loan sale into the rules written for loan sales.
Loan sales and pools are the work of ABSO (Asset Backed Securitisation Orchestration), the securitisation platform, which aggregates eligible loans and prepares the loan-level file a buyer needs. The two routes for selling loans are compared in PTC vs direct assignment.
Co-Lending Compliance Checklist, And How LOA Covers Each Item
Each requirement below comes from the 2025 directions. LOA holds the shared record that makes each one provable.
| What The Directions Require | How LOA Covers It |
|---|---|
| Each partner retains at least 10% of every loan | The exposure split is encoded as a smart contract rule, and each partner's share is recorded against every loan. |
| Any default loss guarantee is capped at 5% of outstanding loans | Shares and loan terms sit on one record, the base both partners measure the guarantee against. |
| Servicing fees are not subordinated, waived or deferred | The agreed terms travel with the file, and every change is logged for audit. |
| Selective purchases follow the transfer of loan exposures directions | Those purchases run as loan sales, where ABSO prepares the pool and the loan-level file. |
| Asset classification is synchronised, shared by the next working day | Both lenders work from one record with each decision logged. |
| Key facts statement, bureau reporting and a published partner list | Each partner's role, share and terms are held in one place. |
Because the arrangement lives on one record, any review after a change in partners, products or the directions starts from the current state of every loan.
What The RBI Co-Lending Directions 2025 Mean For Systems And Data
The operational burden sits mostly with data. Two lenders must agree on the state of every borrower at all times. If one lender classifies an account as special mention or non-performing, the other must reflect the same status, and the information has to move by the next working day.
That is hard to do when each lender runs its own origination and servicing systems and reconciles by file exchange. A shared, time-stamped record of each loan, its shares and its status removes most of the reconciliation, which is the same argument set out in why enterprises choose permissioned blockchain. It is also the record LOA builds for every co-lent file.
Disclosure adds further data work. Loan agreements must set out each partner's role clearly, the key facts statement given to the borrower must reflect the arrangement, each lender reports its share to the credit bureaus, and lenders publish a list of their active co-lending partners. All of this is easier when the shares, terms and status live in one place.
Roles And Responsibilities Between Partners
The directions expect a clear split of duties in the loan agreement. Partners should agree who sources and onboards the borrower, who underwrites against whose policy, who services the loan and collects payments, who handles grievances and who reports to the credit bureaus.
Each lender remains responsible to the regulator for its own share. That makes it important for both to see the same loan data, the same documents and the same collection history, without relying on periodic summaries from the other side.
How LOA Supports Co-Lending
LOA builds each application from the documents in the file and records the decision, the conditions and the lender shares on one record. Each lender joins the file with its own verified identity and its own credit policy, and the rules for eligibility, exposure split and approvals are encoded as smart contracts. Both partners work from one file, so there are no two copies to reconcile.
AskIsta, the GenAI engine inside LOA, reads the documents and checks each file against policy before funding. Every answer cites its source document, and the credit decision stays with a named person at each lender.
On live lending teams the system cuts turnaround by 40 to 60% and reduces the work on each file from 8 to 10 hours to 1 to 2. When part of the book is later sold or pooled, the clean files flow into ABSO for structuring. Origination and servicing are compared in LOS vs LMS.
See A Co-Lending File Run In LOA
- Book an LOA co-lending demo with the Istakapaza team.
- Bring a sample loan package and the main terms of one co-lending arrangement, such as the share split and each partner's credit policy.
- The session shows both partners on one LOA file, with AskIsta reading the documents and the shares, conditions and decision trail on the record.
Read more about LOA for banks, NBFCs and co-lending partners. Regulation changes, so details should be confirmed against the current RBI text.
Frequently Asked Questions
When do the RBI co-lending directions 2025 take effect?
The Reserve Bank of India Co-Lending Arrangements Directions, 2025 apply from 1 January 2026. Lenders were permitted to adopt them earlier. Existing arrangements should be reviewed against the new requirements before that date.
What is the minimum retention under the new co-lending rules?
Each co-lending partner must retain at least 10% of every loan in the arrangement. Under the earlier framework, the originating non-bank lender had to keep 20%, so the new rule lowers the floor and applies it to both partners.
Is a default loss guarantee allowed in co-lending?
Yes. The originating lender may provide a default loss guarantee of up to 5% of the outstanding loans in the arrangement. Servicing fees cannot be subordinated, waived or deferred as an alternative form of support.
What software supports co-lending under the 2025 directions?
A co-lending platform needs both lenders on one loan record with their shares, credit policies and decisions logged. LOA is a loan origination system in which each partner joins the file with its own verified identity and policy, and the eligibility, exposure split and approval rules are encoded as smart contracts.
Glossary
- Co-Lending
- Two regulated lenders funding the same loan in agreed shares.
- Default Loss Guarantee
- A promise by one party to cover losses on a portfolio up to a set limit.
- Special Mention Account
- An early-warning classification for loans showing signs of stress.
- Key Facts Statement
- A standard summary of loan terms given to the borrower before signing.
- Transfer And Distribution Of Credit Risk
- The consolidated RBI directions, issued in November 2025, that cover loan transfers, co-lending and related risk sharing.
Back to the blog.
