RBI's Draft Framework: A New Era for Co-Lending with Blended Interest Rates

The RBI's draft framework for co-lending aims to benefit borrowers through 'blended interest rates'. This proposal will cover sourcing arrangements across asset segments, offering clarity and operational flexibility for regulated entities. Enhanced transparency and standardized practices aim to curb systemic risks, while reducing interest rates for borrowers.

The Reserve Bank of India's (RBI) new draft framework for co-lending is expected to bring significant benefits to borrowers by introducing 'blended interest rates'. Under this system, interest rates will be calculated as an average of rates from funding regulated entities, weighted by their funding shares.

Announced on April 9, 2025, the draft framework covers a broader range of co-lending and sourcing arrangements than previously addressed. This expansion includes all asset segments beyond the earlier priority sector lending, indicating a major shift in the regulatory landscape.

The draft framework is likely to offer enhanced operational flexibility for Non-Banking Financial Companies (NBFCs), yet will impose stricter compliance in areas such as default loss guarantees and disclosures. It aims to provide greater transparency and potentially lower interest rates for borrowers while reducing systemic risks.

(With inputs from agencies.)