RBI's clean-up is forcing a rethink of NBFC–fintech co-lending models

Co-lending relationships between regulated lenders such as banks and non-banking finance companies (NBFCs) on one side, and fintech firms on the other, are expected to change significantly over the next three to five years, experts said at a Mint BFSI Summit panel discussion.

Speaking at the summit, Ravi Narayanan, managing director and chief executive officer of SMFG India Credit Co. Ltd, and Nirav Shah, managing director of Equirus Capital, said fintech partnerships with regulated entities will look very different in the coming years. Self-governance, better risk alignment, tighter unit economics and stronger user-data protection will replace earlier shortcuts such as balance-sheet renting or excessive credit guarantees.

In simple terms, the panelists argued, the winning models will be those that serve a digital-first borrower who expects fast decisions, clear communication and confidence that both their data and money are secure.

Narayanan summed up the evolving customer expectation in three words: “speed, transparency, trust”.

He said fintechs bring agility and a technology-first mindset, while NBFCs contribute trust, governance, a deeper understanding of risk and underwriting nuances that are often more sophisticated.

Shah noted that most fintechs were built to distribute credit at scale and to run behavioural analysis on large volumes of data, whereas NBFCs typically rely on narrower, more traditional data sets for credit assessment.

“One of the fundamental struggles that I have seen where fintechs and NBFCs find themselves is not having the common set of data,” he said. “I mean, as basic as what an NBFC needs from an assessment and what data the fintech is able to provide.”

Tech bottlenecks

Shah added that technology constraints on the NBFC side often slow these partnerships. There are frequent gaps between how seamlessly fintechs claim they can integrate and what actually happens on the ground.

Many firms describe themselves as “low-code, no-code” players, he said, but when it comes to plugging into the systems of a large bank or NBFC, integrations can still take several months.

“The kind of data pipes that the fintechs need are not the data pipe that probably an NBFC is able to do. Third is how fast an integration or an API-first approach can be done between both the parties,” Shah added.

Regulatory tightening

Over the past few years, NBFC–fintech partnerships have largely been built around co-lending arrangements and first-loss default guarantee (FLDG) structures, where fintechs absorb an agreed share of credit losses in return for access to a regulated balance sheet.

The Reserve Bank of India (RBI) has steadily tightened rules in this space—first through its digital lending guidelines in September 2022, and then through detailed default loss guarantee (DLG) norms issued on 8 June 2023, which cap total DLG cover and clearly define who can offer it.

In parallel, the RBI’s co-lending rules for banks and NBFCs, issued in 2025, sought to ensure that both partners share risks and rewards with proper risk weighting, clear customer ownership and full on-book recognition of loans. This has made it harder for unregulated players to “rent” a licence without bearing real risk.

Against this backdrop, the panelists said the next phase of collaboration will be judged less by how quickly balance sheets can be scaled and more by how cleanly risk is shared and managed.

Narayanan framed the regulatory clean-up as both a warning and an opportunity. If the RBI can eliminate thousands of outdated circulars, he said, regulated entities have little excuse for not simplifying their own internal processes and partnership frameworks with similar urgency.

“To me, the real shift in NBFC–fintech partnerships is from just risk sharing to true risk alignment…both sides have to understand, price and manage the customer’s risk in the same way,” he said.

Narayanan said co-lending has moved beyond its experimental phase and is now a mainstream business. He estimated the market size at around ₹1.3 trillion, growing at 40–45% annually, while acknowledging that the model still has “nuances” that will need to be ironed out as it matures.

Pricing discipline

Shah added that pricing discipline will become increasingly important as borrowers grow more aware and competition intensifies.

At one point, he said, some players charged annualized interest rates of over 70%. These have since fallen to around 40% and could eventually move into the 20% range, making product innovation and sustainable economics critical for survival.

Shah also cautioned firms to strike a balance between investing in technology and investing in people. If technology spend does not translate into real operational efficiency, he warned, unit economics will not hold up.

Simply pouring hundreds of crores into platforms will not, by itself, ensure that a lender remains competitive five years down the line, he said.