RBI eyes interest rate relief for borrowers with co-lending rules

Message conveyed at meet between RBI officials & fintechs

The Reserve Bank of India (RBI) expects the final interest rate charged to borrowers by digital lenders to fall once the new draft guidelines on co-lending come into effect, sources aware of the discussions said.

 

Top officials from RBI’s Department of Regulation met representatives from the fintech industry on Tuesday. Representatives included executives from the Fintech Association for Consumer Empowerment (FACE), Unified Fintech Forum (UFF, formerly DLAI), and the Fintech Convergence Council (FCC). 

 

“There was a discussion around whether the draft co-lending guidelines had created any friction. We also discussed how each model would operate — CLM 2 (co-lending model 2) versus CLM 1,” an industry source said.

 

The draft co-lending norms propose a blended interest rate, calculated as the weighted average of rates charged by participating lenders, aimed at lowering borrowing costs.

 

The new framework is designed to blend final interest rates with each lender’s funding share.

 

The move follows the RBI’s action in October last year against four non-banking financial companies (NBFCs), which were barred from sanctioning and disbursing loans for charging excessive interest rates. The restriction was later lifted.

 

Under the co-lending framework, CLM 1 involves banks and NBFCs jointly originating and disbursing loans. In CLM 2, NBFCs disburse the loans, and banks reimburse up to 80 per cent of the amount later.

 

The person cited above added that feedback on the draft guidelines had been submitted to the regulator and is currently under review. 

 

“The feedback covered pointers such as potential challenges, implications for existing portfolios, and what steps need to be taken ahead of the final regulation,” the person said.

 

The RBI issued the draft guidelines in April.

 

The regulator also expanded the scope of co-lending to include all regulated entities and extended it beyond priority sectors.

 

Call for NBFC-led credit line on UPI

 

Fintech industry bodies urged the RBI to allow NBFCs to offer credit lines through the Unified Payments Interface after the facility was extended to small finance banks (SFBs) earlier this year.

 

“We’ve asked for it to be extended to NBFCs, as that would unlock credit for segments currently left out by banks. It could begin with stricter requirements like technical capacity, capital, or scale. We understand the RBI wants to proceed in stages,” a source said.

 

Industry sources said the regulator may not yet be open to including NBFCs, given that SFBs only recently got access to the feature.

 

“Even if it happens, it will likely be limited to the top five to 10 NBFCs due to the capital and scale needed. Banks need to expand their use of the feature first,” a second person familiar with the matter said.

 

A source who attended Tuesday’s meeting said the RBI was also briefed on how the fintech sector has improved compliance practices over the past few quarters, following earlier scrutiny by the regulator.