RBI co-lending norms: 10% retention, 5% DLG and escrow rule

8 August 20251 min read

Why in the news

RBI reworked its co-lending rules for banks and NBFCs to align risk, make asset classification uniform and protect borrowers.

Minimum retention: every regulated entity holds at least 10% of each loan, so both partners share risk.
DLG: a first-loss guarantee up to 5% of the outstanding amount, in line with the FLDG norms for digital lending.
Blended rate: borrower pays a weighted average of each lender’s internal rate, based on their share of the loan.
APR: any extra fees must be built into the Annual Percentage Rate and disclosed.
Timing: each partner shows its loan portion in its books within 15 days of origination.

Area	Requirement
Asset classification	If one partner marks the loan SMA or NPA, the co-lender follows for its share
Credit policy	Co-lending provisions written into internal policies
Loan agreement	Roles of each partner (sourcing, servicing) and a single point of contact for the borrower
Money flow	Escrow account with a bank for disbursal and repayment; real-time settlement and audit trail
Coverage	Priority and non-priority sectors; any regulated entities

SMA (Special Mention Account): flags potentially stressed accounts before they become NPAs.
Escrow account: a temporary third-party account holding funds until all transaction conditions are met.

Test yourself

1. What minimum share of each loan must every regulated entity retain under RBI's revised co-lending norms?

Each RE must retain at least 10% of the loan on its books.

2. Under the revised co-lending rules, what is the maximum Default Loss Guarantee the originating lender may offer?

The first-loss guarantee can be up to 5% of the outstanding loan amount.

3. How are loan disbursements and repayments routed in RBI's revised co-lending framework?

All flows must pass through an escrow account maintained with a bank.