RBI Finalizes Co-Lending Framework

Mumbai: The Reserve Bank of India (RBI) has introduced final co-lending rules for banks and non-banks, enabling dual lending with a single KYC. This innovative framework mandates blended lending rates, irrevocable funding commitments, and escrow-based cashflow distribution, while maintaining first loss default guarantee.

Impact on Originators and Lenders

With capital impacts and potentially lower returns, co-lending might become less attractive for originators. Additionally, a 15-day loan transfer deadline could push lenders towards simpler direct assignment deals, as noted by ICRA. The framework is set to become effective on January 1, 2026.

Credit Enhancement for Bonds

RBI's norms on non-fund credit now allow banks, financial institutions, and NBFCs to offer partial credit enhancement, making certain bonds safer for investors. This applies to bonds issued by registered entities like municipal corporations, companies, or special-purpose vehicles, under specified conditions.

Monetary Policy Recommendations

An RBI panel recommends focusing the weighted average call rate as the primary monetary policy target. It suggests replacing 14-day variable rate repo and reverse repo auctions with 7-day operations, adaptable to 14 days when necessary, to streamline liquidity management.