For an NBFC, two things sit at the heart of conduct compliance: treating borrowers fairly across the life of a loan, and managing the added complexity that comes when you lend alongside a bank partner. The first is the Fair Practices Code. The second, co-lending, has just been reset by a new RBI framework that took effect on 1 January 2026.
This guide covers both, and how they connect. It explains what the Fair Practices Code requires as a lifecycle discipline, what the new Co-Lending Arrangements Directions, 2025 change for NBFCs, and where compliance gets hard when two lenders share a single borrower relationship.
What the Fair Practices Code requires
The Fair Practices Code is the RBI's conduct standard for how NBFCs deal with borrowers. It runs through the RBI's master directions for NBFCs and sets expectations across the entire loan relationship, from the first communication to final recovery.
At its core, the Code requires transparency and fairness in several areas: clear and non-misleading loan marketing; disclosure of all material terms, including interest rates and the basis on which they are set; adequate notice of any change to terms and conditions; fair, non-coercive recovery practices; and an accessible grievance redressal mechanism. The RBI reinforced disclosure standards further through its Key Facts Statement requirement for loans and advances, which standardises how the all-in cost of a loan is presented to borrowers.
The Fair Practices Code is not a one-time policy you publish and forget. It is a continuous obligation that has to be reflected in how your NBFC actually behaves at every stage of the loan lifecycle.
The Fair Practices Code as a lifecycle, not a document
The most common mistake NBFCs make with the Fair Practices Code is treating it as a document to file rather than a discipline to operate. The obligations attach at each stage of the borrower journey.
At origination, marketing must be honest, eligibility criteria applied consistently, and the borrower given a clear, complete picture of the loan terms before commitment. At sanction and disbursal, the sanction letter, terms, and Key Facts Statement must set out the all-in cost, including the annual percentage rate and any charges, in language the borrower can understand. Through the servicing period, any change to terms requires proper notice, and statements and communications must remain clear. At recovery, the Code prohibits coercive or harassing practices, and requires that recovery agents operate within defined standards. And throughout, a grievance redressal channel must be available, with unresolved complaints escalatable to the RBI Ombudsman.
Operationalising the Code means mapping each of these obligations to a control, assigning ownership, and being able to demonstrate adherence, rather than simply pointing to a policy on your website.
Co-lending: what changed in 2026
Co-lending, where a bank and an NBFC jointly fund the same pool of loans, sharing risk and reward, has been substantially reframed. On 6 August 2025, the RBI issued the Reserve Bank of India (Co-Lending Arrangements) Directions, 2025, which took effect on 1 January 2026 and replaced the 2020 Co-Lending Model that was limited to priority sector lending.
Wider scope. Co-lending is no longer confined to priority sector lending. The new framework covers all loan segments and applies across regulated entities, including commercial banks (excluding small finance banks, local area banks, and RRBs), all-India financial institutions, and NBFCs including housing finance companies.
Minimum 10% retention. Each regulated entity must retain at least 10% of every individual loan on its own books, replacing the earlier requirement for the NBFC to hold a minimum 20% share. This keeps both partners exposed to the credit they originate.
Discretionary model removed. The old CLM-2 structure, under which the bank could accept or reject loans after origination, has been discontinued. The arrangement now entails an irrevocable, back-to-back commitment by the partner to take its share of each loan at origination.
Escrow-based fund flows. Fund movement between partners must run through a mandatory escrow mechanism, with each entity maintaining separate accounts.
Blended interest rate and disclosure. Borrowers are charged a single blended rate, and all co-lending details must be disclosed to the borrower through the Key Facts Statement. Lenders must also publish their live co-lending partners on their websites and disclose arrangement details in their financial statements.
Unified asset classification. Borrower-level asset classification applies, so if one partner classifies an exposure as SMA or NPA, the other must follow. An originating NBFC may provide a Default Loss Guarantee capped at 5% of the co-lending portfolio, governed by the digital lending DLG rules.
The compliance layer co-lending adds
Co-lending does not replace your Fair Practices Code obligations. It adds a second layer of complexity on top of them, because now two regulated entities share responsibility for a single borrower.
Several obligations become more demanding in a co-lending context. The Key Facts Statement must accurately reflect the blended rate and both lenders' roles. Grievance redressal remains the joint responsibility of both partners: operational handling can be assigned to one for convenience, but from a regulatory standpoint the grievance officers of both lenders must retain oversight, and the complaint cannot simply be passed off. Recovery and enforcement action against a borrower is a joint right that must be pursued jointly or by one partner acting under the other's authority. Reporting to credit information companies must be done by each entity for its own share. And the borrower-level asset classification rule means the two partners' systems have to stay synchronised, since one partner's NPA classification binds the other.
Where fair practices and co-lending compliance break down
Understanding the obligations is straightforward. Sustaining them across a live book, multiple partners, and a full loan lifecycle is where NBFCs struggle.
The recurring failure points are these. Partner synchronisation is the hardest: keeping asset classification, disclosures, and grievance status aligned across co-lending partners is difficult when systems are disconnected. Conduct obligations are easy to state but hard to evidence at every lifecycle stage, especially recovery conduct and change-of-terms notices. Disclosure accuracy under the Key Facts Statement, particularly the blended rate, has to be right on every loan. And the new escrow, retention, and reporting mechanics require operational discipline that manual processes handle inconsistently.
How Finnulate supports fair practices and co-lending compliance
Finnulate supports the compliance programme around the Fair Practices Code and co-lending, keeping the obligations, controls, and evidence structured, monitored, and audit-ready, across your own operations and your co-lending partners.
- Regulatory ingestion and requirement extraction: The Co-Lending Arrangements Directions, the conduct rules, and related RBI updates are ingested and converted into structured obligations and tasks.
- Lineage across regulatory change: When the RBI amends a co-lending or conduct requirement, lineage shows exactly which controls, disclosures, and partner obligations are affected.
- Partner and multi-entity oversight: Obligations can be tracked per co-lending partner and per arrangement, with consolidated visibility across the whole book, so nothing falls between two lenders.
- Continuous monitoring through the Autonomous Compliance Module: Rule-based checks monitor whether conduct and co-lending controls, from KFS disclosure to grievance timelines, are operating as intended.
- No-code rule building with validation: Compliance teams define and test monitoring logic for conduct and co-lending obligations without engineering support.
- Audit readiness by design: Every check, disclosure, and decision is logged with timestamps and ownership, producing the defensible evidence trail the RBI expects.
For NBFCs, the Fair Practices Code and co-lending compliance are two sides of borrower-facing conduct, and both have raised the bar. The Fair Practices Code demands fairness operationalised across the entire loan lifecycle. And the new Co-Lending Arrangements Directions, 2025 have reset the rules for lending alongside banks, with tighter retention, mandatory escrow, joint grievance responsibility, and unified asset classification. This connects closely to the RBI's digital lending framework, since digital co-lending must comply with both. To see how Finnulate helps NBFCs manage fair practices and co-lending compliance at scale, book a demo.