Co-lending explained: how banks and fintechs lend together in India

Co-lending means two lenders put money into one loan. A borrower signs a single loan agreement, but behind it a bank funds one part and an NBFC funds the other. Both earn interest on their share, and both lose money if the borrower stops paying.

The idea is simple. Banks have cheap money but few ways to reach small borrowers. NBFCs and fintech lenders have the apps, the data and the field teams, but their money costs more. Putting the two together lets a loan reach someone neither could serve alone at a good price.

The fintech or NBFC finds the borrower, checks the person and does the paperwork. It then offers the loan to its bank partner under a pre-agreed arrangement. Both lenders decide, using their own rules, whether to take their part.

Money moves from each lender to the borrower in the agreed shares. The borrower repays through one channel, and the collections are split between the two lenders. The NBFC usually keeps servicing the loan: sending reminders, collecting instalments and handling customer questions.

• Sourcing: the NBFC or fintech finds and onboards the borrower.
• Underwriting: each lender approves the loan under its own policy.
• Funding: both lenders disburse their agreed shares.
• Servicing: the NBFC usually collects and passes on the bank's share.
• Reporting: both keep the loan on their books in proportion to their share.

The Reserve Bank of India (RBI) issued its Co-Lending Arrangements Directions in August 2025, and they apply from 1 January 2026 for new arrangements, as of November 2026. They replaced older, narrower rules that mainly covered lending to priority sectors such as small farmers and small businesses.

The new directions cover most kinds of loans, not just priority-sector ones. Banks and NBFCs sign a written agreement that sets out the roles, the share each lender takes and how customers are treated. As I understand the text, each lender must keep a minimum share of every loan on its own books, put at 10% in some summaries. Check the current RBI text for the exact figure, since details can be amended.

The directions also say how customers must be treated. The borrower should get a clear statement of the blended interest rate and the roles of both lenders, and one lender takes responsibility for the customer-facing tasks. The rules also cover how lenders share information, how they handle complaints and how loans are classified if they turn bad. Details change, so read the latest text.

The first reason is money. A small lender that funds every loan itself needs a lot of capital, and capital is expensive. A bank funding most of each loan means the fintech can write many more loans with the same equity.

The second is price. A bank's cost of funds is lower, so the blended rate offered to the borrower can come down. The third is stability: a bank partner brings a regulated name and a steady funding line, which matters when investors are cautious about lending startups.

There are two sources. The first is interest on the share the NBFC funds itself. The second is a fee, or a share of the interest, for finding the borrower and running the loan. This second income does not need much capital, which is why the model looks attractive.

When you read a fintech's revenue, ask how much is interest and how much is fees. Interest income depends on the size of the loan book on its own balance sheet. Fee income grows with the volume of loans it originates, even when the bank holds most of them.

A growing fintech may therefore show strong revenue growth while its own loan book stays small. That can look odd next to a traditional lender, whose income is almost all interest. Neither is better by default, but the two have different risks. A fee-heavy model depends on partners continuing to buy loans, while an interest-heavy model depends on the lender's own capital and funding costs.

Credit risk is shared, but the split is not always even. If borrowers default, both lenders lose their share. The NBFC may also have promised to cover some of the bank's losses through a guarantee, which brings back some of the risk it hoped to pass on. Our guide on FLDG covers that.

There is also partner risk. If the bank ends the arrangement or tightens its rules, the fintech's loan volume can drop quickly. Regulators can also change the rules, and a lender that grew by leaning on one partner can find itself exposed.

• Defaults hit both lenders in proportion to their shares.
• A guarantee from the NBFC can pull risk back onto it.
• Dependence on one or two bank partners is a concentration risk.
• Poor collections by the NBFC can hurt the bank's share too.
• Rule changes can alter margins or the minimum share each lender keeps.

A headline such as a fintech signing a co-lending deal with a bank usually means a new funding line, not a payment into the company. Look for the size of the line, the type of loans, and whether the bank is taking most of the risk.

A bigger bank line can show that a regulated lender trusts the fintech's underwriting. It does not prove the loans will be repaid. Watch the later numbers: the share of loans that turn bad, and how much the fintech keeps on its own books.

Also check who handles collections and complaints, because a borrower who feels badly treated can harm both lenders' names.

No. A lender needs regulatory standing to lend, which is why many fintech lenders hold or partner with an NBFC. Our guide on the NBFC licence explains that. A guarantee is a promise to cover losses, which is a separate piece. Co-lending is the way two lenders split one loan.

This is general information, not legal or financial advice. Check current RBI rules and talk to a professional before relying on any of it.