RBI Co-Lending Arrangements Directions, 2025: A Structuring Guide
What changed for bank-NBFC co-lending, and where deals get structured wrong.
RBI issued the Co-Lending Arrangements (CLA) Directions, 2025 on August 6, 2025, effective January 1, 2026. They replace the 2020 Co-Lending Model circular, which was limited to priority-sector lending between banks and NBFCs. The new Directions cover co-lending across all lending activity, between any combination of commercial banks (excluding Small Finance Banks, Local Area Banks, and RRBs), All India Financial Institutions, and NBFCs including HFCs. This is a working reference, not legal advice.
What the Directions actually require
| Requirement | What it means in practice |
|---|---|
| 10% minimum retention | Each regulated entity must keep at least 10% of every co-lent loan on its own books; full pass-through structures no longer qualify as co-lending |
| Joint disbursal from day one | Both lenders must fund the loan from origination; the old "originate and sell" model, where an NBFC funds first and transfers to a bank shortly after, is no longer compliant co-lending |
| 15-day settlement window | The partner lender's share must be transferred within 15 calendar days of disbursement; miss that window and the entire loan stays with the originating lender |
| DLG capped at 5% | Default loss guarantees are permitted up to 5% of pool-level exposure, explicitly distinguished from the separate FLDG definition under the 2023 Digital Lending Circular |
| Escrow-only fund flows | All disbursements and repayments between co-lenders must run through an escrow account; direct fund transfers outside escrow are not permitted |
| Single blended rate to the borrower | The borrower sees one interest rate, a weighted average of both lenders' pricing, disclosed through the Key Facts Statement along with each lender's share |
| Unified asset classification | Both REs must apply the same borrower-level asset classification, so a loan can't be "standard" on one balance sheet and delinquent on the other |
| Master Agreement per partner | A Master Agreement is required with each co-lending partner, specifying appropriation order, fee terms, and complaint-handling responsibility |
The change that hits smaller NBFCs hardest
The end of "originate and sell" is the headline shift. Many smaller NBFCs built their co-lending economics around recycling limited capital fast: originate, transfer to the bank partner, free up the balance sheet, originate again. Joint disbursal from day one and mandatory 10% retention both work against that model, tightening the capital arbitrage that made co-lending attractive to thinly capitalized originators in the first place.
Where deals get mis-structured
Two patterns come up repeatedly: DLG arrangements that were compliant under the older, less prescriptive framework but now breach the 5% pool-level cap once actual exposure is calculated properly, and "lending service" fees between partners that function as a disguised credit enhancement or informal guarantee, which the Directions specifically prohibit regardless of how the fee is labeled.
Want a one-page PDF version of this guide to keep on hand? Drop your email and it'll be sent your way.