2.6 Co-lending guidelines

Rule summary

The RBI Co-Lending Model (CLM) allows a bank and a registered NBFC to jointly fund a loan in a pre-agreed ratio, against an explicit written agreement. The framework was introduced in 2018 for priority-sector co-origination between banks and NBFCs (CLM-1) and broadened in November 2020 to cover all eligible NBFC categories (CLM-1 and CLM-2).

Source citation

• RBI Co-Lending by Banks and NBFCs to Priority Sector, FIDD.CO.Plan.BC.No.8/04.09.01/2020-21, dated 5 November 2020 (current operative).
• Precursor: RBI Co-origination of loans by Banks and NBFCs for lending to priority sector, FIDD.CO.Plan.BC.08/04.09.01/2018-19, dated 21 September 2018 (CLM-1).

Two flavours operationally

CLM-1 (synchronous / co-origination)

Both lenders take their share of the loan at origination, into their respective books, back-to-back. Requires:

• Pre-agreed credit policy alignment.
• Real-time or near-real-time loan handoff to the partner.
• Partner approves each loan (individually or via pre-agreed automation) at the time of origination.

CLM-2 (assignment-based)

The NBFC originates and books 100% of the loan first, then assigns the partner’s agreed share within a defined window (often T+1 to T+15). Requires:

• All TLE-MD constraints to be satisfied for the assignment (true sale, transfer of substantially all risk and reward in the share, etc.).
• Clear audit trail showing the assignment is not a re-characterisation of a single-lender loan.

Mandatory agreement contents

The co-lending agreement (sometimes called Master Loan Agreement or Co-Lending Agreement) must cover:

1. Eligibility criteria for borrowers (product, sector, ticket, vintage, borrower-type).
2. Risk-sharing ratio (the funding split, typically 80:20 partner:NBFC).
3. Pricing — interest rate offered to borrower, allocation of interest income.
4. Fee structure — origination, servicing, processing, who keeps what.
5. NPA recognition and provisioning — each lender follows its own asset classification and provisioning.
6. Loss-sharing rules — typically per ratio, no DLG between two REs (DLG framework is for LSPs).
7. Servicing arrangements — who collects, who reports, fees for servicing.
8. Customer interface — the originator is the single point of contact.
9. Grievance redressal — borrower grievance flows to the originator first.
10. Information sharing protocol — data files, frequency, format.
11. Recovery rules — process for default, legal action, sharing of recovery proceeds.
12. Auditing rights — each lender’s right to audit the other’s records pertaining to the co-lent portfolio.
13. Disengagement / termination — what happens on termination, including treatment of in-flight loans.

The board of each lender must approve the agreement.

Customer-facing rules

• Single point of contact — the originator (typically the NBFC).
• Borrower disclosure — borrower must be informed in writing that the loan is co-lent, who the lenders are, their respective shares, and grievance routes.
• KFS — single KFS but discloses both lenders and shares.

Information system rules

• The originator must maintain separate accounts / sub-accounts for each lender’s share — distinct ledgers, distinct interest accruals, distinct repayment allocations.
• A single comprehensive loan ledger for the borrower (for borrower-facing statements), built from the constituent shares.
• Daily or weekly MIS to the partner — disbursements, repayments, NPA, recovery.

Settlement and waterfall

• Repayments come into a designated escrow / nodal account — often a separate account at a sponsor bank.
• Waterfall splits each repayment per agreed allocation (typically principal × ratio, interest × ratio, fees × pre-agreed shares).
• Settlement to each lender’s main account daily or weekly via NEFT / RTGS.
• Reconciliation between escrow and lender books happens daily.

Asset classification (each lender’s own)

Each lender classifies its share of the loan per its own NPA / SMA timelines and provisions on its share. RBI explicitly does not allow one lender to lag the other on classification — both must move in lockstep when the underlying borrower defaults.

Priority Sector tagging

For bank partners, the bank’s share of co-lent loans qualifies as PSL if the borrower meets PSL criteria (MSME, agriculture, housing within thresholds, etc.). This is the commercial driver for bank co-lending — banks need PSL volume to meet RBI’s 40% PSL target, and co-lending with NBFCs is a high-quality way to source it.

For NBFCs the PSL tag is generally irrelevant (NBFCs don’t have a PSL target), but the implications for bank pricing and bank appetite are major.

Product implications

• One borrower journey, two policies — must run the file through both policies; route to own book if only NBFC policy passes, co-lend if both pass, decline if neither.
• Borrower communication — KFS and loan agreement disclose co-lending.
• One repayment schedule, one EMI — borrower sees a single experience.

System implications

• Co-lending allocation engine — see Section 7 for full design.
• Dual-policy execution — every application runs through originator’s and partner’s policy concurrently. Results: pass both / pass originator only / pass partner only / fail.
• Dual ledger — every co-lent loan has two share-level ledgers and one consolidated view.
• Escrow reconciliation — daily reconciliation between escrow and each lender’s general ledger.
• MIS push — daily file (CSV / API) to partner with loan-level and portfolio-level data.
• Per-loan share tracking — originator_share_pct, partner_share_pct, originator_share_outstanding, partner_share_outstanding.

Documents that must be generated

• Master Co-Lending Agreement (per partner).
• Borrower’s co-lending disclosure (per loan).
• KFS showing both lenders.
• Per-loan booking confirmation to partner.
• Daily / weekly MIS file.
• Monthly portfolio MIS to partner.
• Annual report disclosures on co-lent portfolio.

Workflow that must exist

• Partner onboarding — agreement negotiation, IT integration, escrow setup, sandbox.
• Application routing — dual-policy execution at application stage.
• Loan booking handoff — confirmed to partner with all loan metadata.
• Daily settlement — escrow swept to lender main accounts.
• NPA handoff — when borrower is classified NPA, both lenders update simultaneously.
• Audit cooperation — partner audits must be supported with controlled data access.

Reports that must be produced

• Per-partner portfolio MIS.
• Per-partner reconciliation report.
• Per-partner NPA report.
• Per-partner P&L (for own bookkeeping).
• Annual disclosure of co-lent portfolio in audited financials.

Audit evidence required

• Master Co-Lending Agreement.
• Daily MIS files.
• Per-loan booking evidence.
• Escrow account statements with reconciliation.
• NPA classification evidence (lockstep).

Sources

• RBI Co-Lending by Banks and NBFCs to Priority Sector, FIDD.CO.Plan.BC.No.8/04.09.01/2020-21, 5 November 2020.
• RBI Master Direction – Transfer of Loan Exposures, DOR.STR.REC.51/21.04.048/2021-22, 24 September 2021 (relevant for CLM-2 assignment hygiene).
• RBI Master Directions – Priority Sector Lending, FIDD.CO.Plan.BC.5/04.09.01/2020-21, 4 September 2020.