How the Reserve Bank of India’s Jan 2026 Co-Lending Framework Impacts Borrowers & NBFCs

In August 2025, the Reserve Bank of India (RBI) revealed its final Co-Lending Directions, which will begin on January 1, 2026. This new framework will have an influence on how lending works in India affecting borrowers and Non-Banking Financial Companies (NBFCs). So, what does this mean for you?

What Is the RBI’s Co-Lending Framework?

Co-lending creates a partnership between banks and NBFCs to fund loans together sharing both risks and rewards. The new rules expand co-lending beyond priority sector lending adding tighter regulations to boost transparency and risk-sharing. Main points include:

• Minimum Loan Retention: Lenders need to keep at least 10% of each loan on their books.
• Blended Interest Rates: Borrowers will pay a single mixed interest rate combining the rates of both lending partners.
• Uniform Asset Classification: Defaults will show up at the borrower level affecting both lenders.
• Escrow Accounts: Required to distribute cash flow between co-lending partners.

ETBFSI.com+1

How This Affects Borrowers

1. Clear Pricing

The shift to blended interest rates gets rid of the old “hurdle rate” model. This change stops NBFCs from overcharging on loans by using banks’ cheaper funds. As a result, borrowers get fairer and clearer pricing.

2. Unified Loan Servicing

Borrowers now deal with just one contact for loan servicing. This makes the process simpler and cuts down on mix-ups.

3. Credit Score Implications

Co-lending payment records now show up on credit reports affecting your credit score. Missing an EMI can hurt your standing with both lenders. SMFG India Credit

Impact on NBFCs

1. Enhanced Risk Sharing

The requirement to hold onto loans has an influence on NBFCs to have a stake in the loans they create, encouraging responsible lending.

2. Operational Challenges

The new rules bring in tougher deadlines and compliance needs forcing NBFCs to put money into tech and methods to meet these rules.

3. Possible Profit Worries

The limit on default loss guarantees and the need for escrow accounts might affect how much NBFCs can earn from co-lending deals.

Comparison: Equity vs Debt Funds

FeatureEquity FundsDebt FundsRisk LevelHighLow to MediumReturn PotentialHighModerate to LowInvestment HorizonLong-termShort to Medium-termTax ImplicationsLong-term capital gains tax appliesInterest income faces taxation based on slabSuitable ForInvestors who can handle high riskConservative investors

Tax Implications

For Borrowers

• Interest Deduction: Loan interest payments might qualify for tax deductions under Section 24(b) of the Income Tax Act, if certain conditions are met.
• EMI Structure: EMIs have principal and interest parts; the interest part qualifies to be deducted.

For NBFCs

• Taxable Income: Interest income from co-lending arrangements has a tax liability as per the applicable corporate tax rates.
• Loss Provisions: Provisions to cover loan losses may qualify for deductions, provided they comply with RBI guidelines.

Expert Opinion

Financial experts see the RBI’s new co-lending framework as a move to create a more transparent and accountable lending ecosystem. While the tighter regulations might challenge NBFCs, the long-term advantages of increased trust and market stability are likely to outweigh these worries.

Common Mistakes to Avoid

1. Not Considering Credit Score Effects: Failing to think about how co-lending might change your credit score can make it harder to borrow money later.
2. Not Grasping Compliance Needs: NBFCs shouldn’t downplay the work needed to follow the new rules.
3. Not Getting Tax Details: Borrowers and NBFCs need to know how co-lending deals might affect their taxes.

FAQs

Q1: Will co-lending make personal loans cheaper? A1: Using blended interest rates aims to make personal loans more competitive, which could lower costs for people who borrow.

Q2: How does co-lending have an impact on my credit score? A2: Co-lending payment records get sent to credit bureaus influencing your credit score.

Q3: What’s the outcome if I skip an EMI? A3: Both lenders will mark a skipped EMI as a default hurting your ability to get credit.

To wrap up

The RBI’s new co-lending framework, which takes effect in January 2026, has a big impact on India’s lending scene. Borrowers can expect clearer pricing and easier loan handling. NBFCs face new challenges in sharing risks and running their operations. As these new rules roll out, borrowers and NBFCs need to keep up and adjust to the changes.