Co-Lending Volumes Are Up. So Is the Reconciliation Headache

Co-lending between banks and NBFCs has moved from a regulatory experiment to a mainstream channel. The commercial logic is sound: the bank brings cheap capital, the NBFC brings origination and servicing reach, and the borrower gets a blended rate. What has not kept pace is the operational plumbing.

The structural problem

A co-lent loan is, in accounting terms, two loans that must behave as one. The borrower sees a single EMI. Underneath, that EMI has to be split by the agreed ratio, with each party's share recognised in its own books, its own interest accrual, its own NPA classification, and its own regulatory reporting.

If the NBFC's loan management system was not designed with this in mind, the split typically happens in a spreadsheet, monthly, after the fact. That works at fifty loans. It does not work at five thousand.

Where the friction shows up

• Collection allocation. A partial payment has to be split proportionally, and both parties need to agree on the sequence: principal first, interest first, overdue charges first. Mismatched sequencing rules between partner systems produce reconciliation differences every month.
• NPA classification timing. Both lenders classify the same borrower. If their day-count conventions differ even slightly, one may flag NPA on day 90 and the other on day 91. Regulatorily awkward, operationally messy.
• Prepayment and foreclosure. Early closure has to unwind both sides consistently, including any interest reversal. This is where most manual processes break.
• Reporting to the partner. The bank typically wants a loan-level file on a fixed cadence in its format. Producing that from a system that does not natively know which loans are co-lent and at what ratio is a recurring monthly project.

What good looks like

The lenders handling co-lending cleanly share a few operating characteristics. The co-lending ratio and partner are attributes of the loan itself, captured at origination, not applied afterwards. Collection allocation is a system rule, agreed with the partner and configured once. Partner reporting is a scheduled extract, not a manual assembly. And crucially, the accounting entries for the NBFC's share are generated automatically alongside the loan transaction, not posted separately at month end.

We built the co-lending capability in Finpage around exactly these principles, largely because early clients were losing days every month to reconciliation that should not have existed. Whatever platform you are on, the test is simple: if a co-lent borrower prepays tomorrow, can your system produce the correct entries for both parties without anyone opening Excel? If not, the reconciliation headache will scale with your volumes.