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Informist, Wednesday, Apr. 9, 2025

MUMBAI – The Reserve Bank of India Wednesday released draft guidelines on co-lending arrangements to cover all the possible categories. The guidelines are applicable to all regulated entities of the RBI. However, the norms are not applicable to loans exceeding INR 1 billion, sanctioned under multiple banking, consortium lending, or syndication, the guidelines said.

A co-lending arrangement is an agreement to fund a loan portfolio in a pre-agreed proportion, involving revenue and risk sharing. As per the guidelines, the loan agreement signed by a borrower with funding entities should disclose upfront the segregation of the roles and responsibilities.

Further, the banks engaging in the co-lending agreement for loans eligible to be classified under priority sector lending can claim priority sector status in respect of their share of credit under the said arrangement. Non-bank finance companies should adhere to the applicable accounting standards, while booking unrealised profit under the arrangement. However, unrealised profits, arising out of such co-lending arrangements, should be deducted from common equity tier-1 capital or net owned funds for meeting regulatory capital adequacy requirement till the maturity of such loans, according to the guidelines.

The final interest rate charged to the borrower shall be the blended interest rate which is calculated as an average rate of interest derived from the interest rates charged by respective funding entities, as per their internal lending policies and risk profile of the same borrower. All transactions between the entities, as well as with the borrower, shall be routed through an escrow account maintained with a bank, which could also be one of the banks involved in the arrangement.

The guidelines also say that if any of the entities classifies their exposure in special mention accounts or non-performing accounts, the same classification shall be applicable to the exposure of other entities as well.  End

Reported by Kabir Sharma

Edited by Ashish Shirke

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