Co-Lending Loan India: Bank and NBFC Explained
Co-Lending Loan in India: How the Bank and NBFC Model Works
Co-lending is a model where a bank and a Non-Banking Financial Company (NBFC) jointly originate and fund a loan. The NBFC sources and services the loan while the bank funds a significant portion of it, usually 80%. The borrower gets the benefit of both: the NBFC’s speed and flexibility, combined with the bank’s lower cost of funds.
The RBI introduced the Co-Lending Model (CLM) framework in 2020, replacing the earlier co-origination model, to improve credit flow to priority sector borrowers such as MSMEs, farmers, and underserved households.
Overview of Co-Lending in India
Under RBI’s CLM guidelines, the bank takes at least 80% of the loan on its books and the NBFC retains 20%. The interest rate the borrower pays is a blended rate, usually lower than what the NBFC would charge standalone and competitive with bank rates.
Active co-lending partnerships in India include SBI with several NBFCs, HDFC Bank with NBFCs like Poonawalla Fincorp and U GRO Capital, and small finance banks with microfinance institutions.
Interest Rates
Co-lending loan interest rates in India are typically 1% to 3% lower than standalone NBFC loans because of the lower-cost bank capital involved. Borrowers can expect rates in the following range depending on the loan category:
| Loan Category | Typical Co-Lending Rate (p.a.) |
|---|---|
| MSME working capital | 10% to 14% |
| Agricultural loans | 8.50% to 11% |
| Personal/consumer loans (CLM) | 11% to 17% |
| Home improvement loans | 10% to 13% |
Eligibility Criteria
- Borrowers eligible under the NBFC partner’s product criteria (MSME owners, farmers, self-employed, salaried)
- Priority sector lending (PSL) categories are primarily targeted, but co-lending has expanded to non-PSL segments as well
- CIBIL score requirements set by the originating NBFC (usually 600 to 700)
- Regular income proof and business documents for MSME loans
Documents Required
- PAN card and Aadhaar card
- Business registration and GST certificate (for MSME loans)
- Last 6 to 12 months bank statements
- ITR for the last 2 years
- Property documents for secured co-lending products
Application Process
- Apply through the NBFC partner’s platform or branch (the NBFC handles origination)
- Submit required KYC and income documents
- NBFC assesses credit and checks co-lending eligibility with the bank partner
- Loan is sanctioned with the bank funding 80% and NBFC funding 20%
- Disbursement happens from both partners simultaneously
- Repayment is serviced by the NBFC, which routes bank’s share back to the bank
Frequently Asked Questions
Does the borrower deal with two lenders in a co-lending arrangement?
No. From the borrower’s perspective, the NBFC is the single point of contact. Repayment, queries, and documentation all go through the NBFC. The bank’s involvement is transparent but administrative.
Are co-lending loans only for priority sector borrowers?
Originally, yes. The RBI’s CLM 2020 framework was designed for priority sector lending. However, several banks and NBFCs have extended co-lending partnerships to non-PSL segments like personal loans and consumer durables.
How is the blended interest rate calculated in co-lending?
The final borrower rate is derived from the weighted average of the bank’s cost (lower, since it funds 80%) and the NBFC’s cost (higher, for 20%). The NBFC keeps the spread between its portion and the bank’s contribution as its income.
What happens if the NBFC shuts down during the loan tenure?
The bank is the senior lender and the loan asset is on both books. RBI guidelines require a servicing continuity plan. The bank can step in to service the loan directly if the NBFC is unable to continue.
