ICRA Supports RBI's Move to Blended Interest Rates in Co-Lending Framework

ICRA endorses RBI's proposal for introducing 'blended interest rates' in co-lending loans, aiming for reduced borrowing costs and enhanced transparency. The draft guidelines emphasize streamlined roles and stricter disclosure norms, promising significant improvements in the co-lending sector.

In a progressive step, the Reserve Bank of India (RBI) has proposed a shift to 'blended interest rates' for co-lending loans, an initiative expected to benefit domestic borrowers. Rating agency ICRA has expressed its approval of the draft framework announced by the RBI on April 9, which aims to set regulatory standards and address prudential issues in co-lending arrangements.

Typically, borrowers face an all-inclusive rate, agreed between lending parties. However, the proposed blended rate will average the rates from different funding entities based on their financial contributions. According to ICRA, this change might lead to lower interest rates for borrowers, as current regulations fail to encompass non-priority sector funding and NBFC-to-NBFC arrangements.

Further, the framework provides broader coverage across all asset categories, with a notable focus on transparency. The guidelines require loan agreements to disclose lender responsibilities, enforce explicit consent for changes in customer interfaces, and mandate partner disclosures on websites, all aiming to enhance the co-lending sector's transparency and growth.

(With inputs from agencies.)