News | RBI’s Draft Lending Norms May Disrupt Popular Co-Lending Structure, Says Federal Bank ED

RBI’s Draft Lending Norms May Disrupt Popular Co-Lending Structure, Says Federal Bank ED

News

15 April 2025

2 min read

UBS Forums

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The Reserve Bank of India (RBI) has released a draft framework that could potentially alter the way co-lending partnerships operate, particularly affecting the widely adopted “Model 2” structure used in partnerships between banks and NBFCs for disbursing gold loans.

Under the current Model 2 co-lending setup, NBFCs are primarily responsible for originating and disbursing the entire loan, while banks participate by providing the capital. However, the RBI now seeks to tighten compliance, risk-sharing, and operational clarity, aiming to address potential risks arising from such arrangements.

Speaking on the matter, Federal Bank Executive Director Shalini Warrier indicated that the proposed norms may make Model 2 non-viable or non-compliant, requiring a complete restructuring of several active partnerships in the financial ecosystem.

This could especially impact NBFCs like Manappuram Finance, who rely heavily on this structure for their gold loan business. The RBI’s intent appears to be the creation of a more transparent and uniform framework for co-lending to reduce regulatory arbitrage and protect customer interests.

Industry players are expected to respond to the draft guidelines in the coming weeks. While the co-lending model was introduced to expand credit access through partnerships, this proposed regulatory shift signals the central bank’s growing focus on accountability, uniform risk management, and better oversight.

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