By S&S Co. Advocates & Solicitors · Published 20 February 2026 · Informational content, not legal advice. See our disclaimer.
Two Separate Developments, One Practical Theme
Two recent developments in banking regulation, though unrelated on their face, speak to the same practical theme for a business that borrows from a bank or a non-banking financial company: the identity of the entity actually enforcing a loan, and the rules under which it does so, can change after the loan is disbursed, sometimes significantly. The first development is the Reserve Bank of India's Co-Lending Arrangements Directions, 2025, which reset the rulebook for loans jointly funded by a bank and an NBFC. The second is the Supreme Court's decision in Kotak Mahindra Bank Limited v. Trupti Sanjay Mehta, which addressed what happens when a non-performing secured loan is assigned from one lender to another.
What Changed With Co-Lending in 2025
Co-lending arrangements, where a bank and an NBFC jointly fund a loan to a single borrower, have existed in India since 2020, but that earlier scheme applied narrowly to priority sector lending. The 2025 Directions, reported to have come into force from 1 January 2026, are understood to extend the co-lending framework to a much wider range of loan products, while introducing firmer structural requirements: each lender in the arrangement must reportedly retain a minimum stake, commonly cited at ten percent, in the loan throughout its tenor rather than passing on its entire share; the originating lender must transfer the other lender's share within a fixed window, reported as fifteen days; and the loan is to carry one blended interest rate rather than two separately calculated rates stacked together.
For a business taking a co-lent loan, the practical upshot is that the loan documentation should now disclose which entities are involved, in what proportion, and what the blended rate actually works out to. A borrower that previously dealt with a single NBFC relationship manager for a co-lent facility may now see more active involvement from the partner bank, since the bank itself retains a continuing stake in, and co-responsibility for, the loan rather than a one-time funding role.
What Happens When a Loan Changes Hands
Separately, the Supreme Court's decision in Kotak Mahindra Bank Limited v. Trupti Sanjay Mehta addressed a different but related question: what happens when a secured loan originally made by one entity is later acquired by a bank, and the loan has since become non-performing. The Court is reported to have held that once a bank validly acquires such a secured debt by assignment, it can invoke the SARFAESI Act's summary enforcement remedies against the underlying security, even though the original lender making the loan was not itself an entity covered by SARFAESI.
For a borrower, this means that the character of the lender actually enforcing a secured loan at any given time, not the lender who originally extended it, is generally what determines whether SARFAESI's faster enforcement route, rather than an ordinary civil suit, becomes available against the borrower's secured assets. A business that borrowed from an entity outside SARFAESI's notified list should not assume that status will remain fixed if the loan is later assigned to a bank or a notified asset reconstruction company.
Practical Takeaways
A business with co-lent financing should ask its lender directly for a clear breakdown of the co-lending structure, the respective retained shares of each lender, and the blended rate being charged, and should keep that documentation on file for future reference. A business with any secured loan, regardless of who originally extended it, should assume that the loan could be assigned during its life, and should read the assignment or transfer notice carefully to understand which entity is now entitled to enforce the security and under what legal framework.
Frequently Asked Questions
Frequently Asked Questions
What is a co-lending arrangement under the RBI's 2025 Directions?
A co-lending arrangement is a structure in which a bank and a non-banking financial company jointly fund a single loan to a borrower, each retaining a share of the loan on its own books. The Reserve Bank of India's Co-Lending Arrangements Directions, 2025, reportedly extend this structure beyond priority sector lending and set minimum retention, disclosure and interest-rate requirements for the participating lenders.
Does an assigned loan automatically become subject to SARFAESI enforcement?
According to the Supreme Court's reported decision in Kotak Mahindra Bank Limited v. Trupti Sanjay Mehta, once a secured non-performing loan is validly assigned to a bank or another entity notified under the SARFAESI Act, that assignee can use SARFAESI's summary enforcement remedies against the underlying security, even if the original lender was not itself covered by the Act.
Can a borrower still challenge title or ownership disputes while SARFAESI proceedings are pending?
Separate Supreme Court authority, including Central Bank of India v. Prabha Jain, has reportedly clarified that civil courts retain jurisdiction to decide questions about the validity of sale deeds or mortgage documents even while SARFAESI enforcement is under way, since such title questions fall outside the Debts Recovery Tribunal's jurisdiction under Section 17 of the Act.
What should a co-borrowing business ask its bank or NBFC for after the 2025 Directions?
A business should ask for a written breakdown of which entities are funding the loan, their respective retained shares, the blended interest rate being applied, and the timeline for any transfer of shares between the co-lenders, since the 2025 Directions are reported to require enhanced disclosure of these details to the borrower.
References & Further Reading
This article summarises reported regulatory and judicial developments in general terms for informational purposes. Readers should verify the current text of the RBI's Co-Lending Arrangements Directions, 2025 and the full text of the Supreme Court's judgment before relying on any specific detail.
- Reserve Bank of India, Co-Lending Arrangements Directions, 2025 (reported reference RBI/DOR/2025-26/139, dated 6 August 2025).
- Kotak Mahindra Bank Limited v. Trupti Sanjay Mehta and Others, reported as 2026 INSC 943, Supreme Court of India.
- Central Bank of India v. Prabha Jain, Supreme Court of India, on civil court jurisdiction over title disputes during SARFAESI proceedings.
- SARFAESI Act, 2002, Section 13 (enforcement of security interest) and Section 17 (DRT jurisdiction).