New co-lending norms may reduce bank, NBFC volumes in near term

Banks and non-banking financial companies (NBFCs) expect Reserve Bank of India's (RBI's) new guidelines on co-lending to reduce volumes in the near term due to operational challenges as one of the stipulated norms calls for transferring a loan within 15 days of its origination.

- ANUPREKSHA JAIN

According to market participants, the size of co-lending books is expected to shrink sharply in the short run, particularly for smaller NBFCs. They said that the new rules could increase operational costs for lenders, who will now need to maintain mandatory escrow accounts, comply with stricter know-your-customer (KYC) norms, and invest in upgraded technology integration. Smaller NBFCs have urged the RBI to extend the compliance deadline beyond January 2026.

"On the face of it, co-lending should expand, but operational aspects such as the 15-day transfer rule may pose challenges. There could be short-term hiccups in the form of moderation in volumes due to these operational issues. However, if tech integration happens in time, volumes should recover," said Anil Gupta, Senior Vice-President and Co-Group Head, Financial Sector Ratings, Icra.