Co-lending Model

Imagine a large, well-funded wholesaler partnering with a nimble local delivery service that already knows every street and every customer in a neighbourhood, the wholesaler supplies the capital and stock, the delivery service supplies the reach and relationships, and together they serve customers neither could profitably reach alone. The Co-lending Model brings almost exactly this partnership logic to bank and NBFC lending.

Under co-lending, a bank and an NBFC jointly originate and fund the same loan, typically in a roughly 80:20 split with the bank providing the larger share of the capital at its own, generally lower cost of funds, while the NBFC handles origination, underwriting expertise and last-mile customer relationships, particularly in semi-urban and rural areas where NBFCs have historically built deeper distribution than most banks.

The arrangement genuinely benefits both sides. The bank gains access to borrower segments, small businesses, first-time borrowers, underserved geographies, it could not efficiently reach on its own, while also often counting this lending toward its Priority Sector Lending targets. The NBFC gains access to bank-cost capital, letting it lend at more competitive rates than its own, typically higher borrowing cost would otherwise allow, without needing to raise all the capital itself.

RBI's co-lending framework, introduced in 2018 and revised in 2020, formalised the risk-sharing and operational rules governing these partnerships, including requirements around joint underwriting standards and how defaults are shared between the two partners, precisely to prevent either party from simply passing risk onto the other without genuine shared accountability.

Whenever a bank announces a co-lending partnership with a specific NBFC to expand into small business or affordable housing loans, that structure is a direct response to a simple reality: neither party alone has both the cheap capital and the last-mile reach needed to serve that market profitably and at scale.