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bank lending

Collaborative Lending: Understanding Banks and NBFCs Co-Lending

Collaborative lending refers to lending money to borrowers where more than one lender is present. It involves the presence of multiple lenders throughout the entire lending process. This approach was initiated with the aim of reducing the risk for individual lenders. Each lender puts forward its own terms and conditions and accordingly, the entire process is carried forward to obtain desired outcomes.

In today’s blog, we are going to discuss in detail the role of Banks and NBFCs (Non-Banking Financial Corporations) in managing the activities related to collaborative lending.

What is Co-lending?

Co-lending refers to the act of lending money in which more than multiple lenders loan a specific amount of money to the borrowers. This concept is widely accepted due to its risk-free nature, as it reduces the risk of bad debt among lenders.

Key Players in the Co-lending Process

Banks and Non-Banking Financial Corporations are two prominent players who collaborate to form the principles of collaborative lending. They form a joint association that allows both parties to equally share the risk and profit earned from the loan amount. This collaborative approach ensures a smooth and systematic process of lending money and eventually enhances customer experience.

Basically, in this case, banks provide a certain specific amount, the rest being taken care of by the Non-Banking Financial Corporations. One notable co-lending partnership is between SBFC (Small Business Finance) and ICICI Bank. This partnership allows the two entities to join forces and provide funding to borrowers who may not have been able to secure loans otherwise.

Rules and Regulations followed in a Co-lending Arrangement

Co-lending Arrangement is created under mutually cooperating rules and regulations related to the distribution of shared risk and interest amount. The Reserve Bank of India (RBI) and the Finance Ministry are two governing bodies responsible for establishing the norms and guidelines related to the same. They ensure compliance, equity, and accountability to regulate these arrangements for establishing an efficient framework and collaboration of the two parties mentioned above.

The said agreement clearly outlines the roles, responsibilities, and liabilities of both parties, creating a clear and concise understanding of each of its designated roles.

Co Lending Infrastructure

Co-lending in India is supported by a robust infrastructure, including the use of escrow accounts to ensure secure and efficient transactions.

When selecting a co-lending partner, it’s crucial to consider factors like reputation, financial stability, and expertise in the target segment. Evaluate their technological capabilities and track record in co-lending, as well as their understanding of regulatory requirements, including the use of escrow accounts.

A strong partnership built on trust and effective communication is essential for long-term success.

Advantages of Cooperative Lending

Synergistic Utilization of Resources: 

Co-lending optimizes the utilization of financial resources by leveraging the surplus liquidity of banks and the specialized domain knowledge of NBFCs. This synergy enhances operational efficiency and profitability for both parties.

Diversification of Revenue Streams: 

Collaborative lending enables banks and NBFCs to diversify their revenue streams beyond traditional lending activities. By tapping into new market segments and offering innovative financial products, they can augment their fee-based income and sustain long-term growth.

Scalability and Reach: 

The combined reach of banks’ extensive branch networks and NBFCs’ agile distribution channels enhances the scalability of lending operations. This expanded outreach facilitates the penetration of credit into underserved geographies and marginalized communities, fostering inclusive growth and development.

Competitive Advantage: 

Co-lending enhances the competitive positioning of banks and NBFCs in the dynamic financial landscape. By capitalizing on each other’s strengths, they can differentiate their offerings, attract a diverse customer base, and fortify their market presence amidst intensifying competition.

Disadvantages of Cooperative Lending

Regulatory Compliance and Governance: 

Co-lending arrangements necessitate robust mechanisms for regulatory compliance and governance to ensure adherence to prudential norms and mitigate risks. Establishing clear roles, responsibilities, and accountability frameworks is crucial for addressing regulatory concerns and maintaining stakeholder trust.

Operational Integration: 

Integrating disparate systems, processes, and cultures of banks and NBFCs poses operational challenges in co-lending initiatives. Effective coordination, seamless information sharing, and technological interoperability are essential for streamlining operations and maximizing synergies.

Credit Risk Assessment: 

Harmonizing divergent credit assessment frameworks and risk appetites of banks and NBFCs presents challenges in co-lending partnerships. Developing standardized credit evaluation models, leveraging data analytics, and conducting comprehensive due diligence is imperative for ensuring prudent lending practices and minimizing default risks.

Relationship Management: 

Building and nurturing collaborative relationships between banks and NBFCs require effective communication, mutual trust, and alignment of strategic objectives. Regular engagement, transparent communication, and conflict resolution mechanisms are essential for fostering a conducive partnership ecosystem.


Collaborative lending represents a paradigm shift in the traditional lending landscape, offering a compelling proposition for banks and NBFCs to unlock synergies, enhance financial inclusion, and drive sustainable growth. By embracing collaborative partnerships, financial institutions can navigate the evolving complexities of the digital age, capitalize on emerging opportunities, and fulfill their mandate of fostering economic prosperity and social welfare. As co-lending continues to gain traction, fostering a conducive regulatory environment, promoting transparency, and fostering trust-based relationships will be critical for realizing its full potential in catalyzing inclusive and equitable economic development.