Co-Lending Arrangement Audit Checklist
CO-LENDING ARRANGEMENT AUDIT CHECKLIST
Bank: {{client_name}} · Branch/co-lending desk: {{branch_name}} · Period: {{period_end}}
Purpose: to test a bank's co-lending arrangement with a registered NBFC (typically under the RBI Co-Lending Model, CLM, for priority-sector lending) for compliance with the minimum risk-retention ratio, escrow-based fund flow, and the pass-through of priority-sector classification into the bank's own PSL reporting.
A. Risk-Sharing & Sanction Controls
- Co-lending agreement specifies the bank's minimum share of the individual loan (per the CLM, ordinarily not less than 20% of the credit risk on its own books) and the NBFC's complementary share.
- Bank retains an independent credit sanction/appraisal role — it does not merely fund loans originated and approved unilaterally by the NBFC without its own risk assessment.
- Blended interest rate to the borrower, and its apportionment between the bank's and NBFC's respective shares, is disclosed and consistently applied per the agreement's pricing formula.
B. Escrow Mechanism & Fund Flow
- Disbursements and collections flow through a single escrow account (or a structure with equivalent segregation) so that funds of the bank and the NBFC are not co-mingled at any stage.
- Escrow account reconciliation performed at the agreed frequency; the bank's share of collections credited to it without undue delay per the agreement's settlement cycle.
- NBFC's servicing/collection role (as the customer-facing entity) does not result in the bank losing visibility of loan-level performance — MIS/reporting from the NBFC tested for completeness against the escrow ledger.
C. Priority-Sector Classification Pass-Through
- Loans classified as priority-sector lending (PSL) by the bank under the co-lending arrangement meet the underlying PSL category's eligibility criteria independently — classification is not assumed solely because the NBFC originated the loan.
- Bank's own share of the co-lent loan is what is reported in its PSL returns — no double-counting of the NBFC's share, and no PSL credit claimed for the portion actually held by the NBFC.
D. NPA Classification & Provisioning
- Each co-lender classifies and provides for its own share of a co-lent loan as an NPA independently, per its own applicable IRAC/provisioning norms — asset classification is not required to be uniform in timing across both co-lenders in every circumstance, but this divergence (if any) is documented and explained.
- Recovery and legal action arrangements between the two co-lenders (who takes the lead) are documented in the master agreement and followed in practice for co-lent NPA accounts tested.
Overall conclusion on the co-lending arrangement: ____________________________________________
Prepared by: ____________________ Reviewed by: ____________________
Date: 30 July 2026
