RBI unveils framework to expand co-lending rules to include all regulated entities and loan types

Monetary Policy Committee Meeting, April 9, 2025

The Reserve Bank of India (RBI) on April 9 unveiled a ground-breaking proposal to revamp its co-lending guidelines, extending their scope to all regulated entities (REs) and all loan categories, moving beyond the current restriction to priority sector lending (PSL).

The announcement was made by central bank governor Sanjay Malhotra as he shared the outcome of the first policy review of FY26.

The present framework limits co-lending to partnerships between banks and non-banking financial companies (NBFCs) and are exclusively focused on PSL categories such as agriculture, micro-enterprises and loans to weaker sections.

The RBI now plans to introduce a more inclusive framework that to include all regulated entities and all types of loans.

Also read: Follow our policy live blog for the latest on the RBI MPC

While the specifics of the new framework are yet to be finalised, Malhotra said detailed guidelines would be issued soon.

The RBI, as expected, cut the key repo rate by 25 basis points, bringing it down to 6 percent. This is the second rate cut in a row after the RBI held the rate steady since May 2020. It had reduced the rate by 25 bps in February as well.

Also read: RBI Monetary Policy Meeting Highlights 2025: RBI cuts FY26 CPI inflation forecast to 4% from 4.2% earlier

The expansion of the co-lending model coincides with the RBI periodically expressing unease about it, without explicitly detailing its concerns. In 2023, the RBI intermittently urged banks to slow down on co-lending arrangements for that year.

As a result, some bankers worry that while broader co-lending could improve credit distribution and risk management, caution is now essential.

As per recent studies, about 75 percent of the co-lending volumes handled by banks are in non-PSL loans, said Kishore Lodha, CFO, UGRO Capital.

However, these were based on approvals granted by the RBI to specific banks that had sought permission.

Now, the RBI has broadened the framework and made it applicable to all regulated entities and for all products.

"Though the process of forming partnerships and executing co-lending agreements remains quite lengthy and requires considerable effort, it is expected to gain momentum sooner rather than later," he said.