On-Balance-Sheet Lending Against Co-Lending Compared
Two lenders and one loan run through everything below. Suvarna Commercial Bank Limited and Rukmini Finance Limited were built to be divided on paper, so every division below is worked out in the open rather than reported from a record. The slice of the book that moves and the share that stays behind are arithmetic illustrations, labelled at the line that uses them. Seven of the requirements touched on below are set by an authority and all seven of them change, so each one appears further down as a row naming that authority rather than a value.
One part of the arrangement does not change at all, and that fixed part is what makes the rest surprising. A borrower signs one agreement for one amount and repays on one schedule. Sharing that loan alters not a rupee of what the borrower received and not a day of when it must come back. The record of the loan is what moves, and a great many numbers people quote about lenders are computed off that record rather than off the lending.
A balance sheetThe list of what a business is owed and holds on one side and what it owes on the other, drawn at one stated date. A balance sheet records positions, not activity. records what a business holds and what it owes, and a loan is recorded by whoever funded it. So asking which arrangement a loan sits under is not a question about the loan at all. The question is where the record of the loan lives, and every number computed from that record follows the record rather than the lending. Six of the seven differences below are consequences of that one sentence, so hold on to it.
Suvarna Commercial Bank Limited, made up for teaching, reports advances of Rs 1,44,000 crore against deposits of Rs 1,92,000 crore for the stated year. Every division worked below runs on those two figures and nothing else.
Rukmini Finance Limited, also made up, takes no deposits at all. It reports assets under management of Rs 18,000 crore, borrowings of Rs 14,400 crore and net worth of Rs 3,600 crore for the same stated year, so its borrowings are 4.00 times its net worth.
What separates carrying a whole loan from sharing one?
Six questions separate the two arrangements, and the order of the six matters more than the list. Write all six down before either arrangement is examined. Whose balance sheet carries the exposureHow much of a lender's money is riding on one borrower still paying. Exposure is an amount at risk rather than a loss that has already landed.. Whose money funds it. Who books the interest. Who absorbs a loss on it. Who the borrower deals with. And what happens to the ratios struck on that balance sheet.
Run the same six down both arrangements in the same order and something falls out that a list arranged any other way hides. The sixth question is not a sixth difference at all. The sixth question is what the first one does to every number computed off that balance sheet, arriving one step later. Answering the first answers the sixth without noticing, which is exactly why people are caught by it.
What is on-balance-sheet lending, taken on its own?
One lender assesses the borrower, funds the whole amount out of its own liabilities, records the whole amount as its own advance, earns every rupee of interest on it, and carries every rupee of the exposure until the loan is repaid or written off. Holding the whole loan is the ordinary case, and it is the case almost everybody pictures when they hear the word loan. The arrangement needs no partner, no split and no agreement with anybody except the borrower.
Think about a shop that buys its stock outright with its own money. There is one entry for that stock in one register, one person to ask about it, and if the stock spoils there is one person it spoils on. There is no second party to that arrangement, so nobody has to be consulted, informed or paid. The property that makes on-balance-sheet lending the default is that every line of the loan lands in one place: the funding, the record, the income and the loss all come to rest on the same balance sheet.
A single landing point is why so much of what people know about lenders works at all. When a lender reports advances, the figure means the amount it funded. When it reports interest earned, that is interest on the same book. When it reports a loss, the loss is on that book. The three statements hold without qualification only because one arrangement holds all three. Share the loan, and each statement needs a share attached to it.
What changes on each set of books when one loan is shared?
Each lender records only its own share as its own advance. Neither records the other's. Recording only your own share sounds obvious written down, and it produces a result almost nobody predicts the first time.
Consider a wedding caterer's bill of Rs 3,00,000/- split between two households, one paying Rs 2,40,000/- and the other Rs 60,000/-. The caterer has one contract for one amount. Either household's own account book afterwards shows Rs 2,40,000/- in one and Rs 60,000/- in the other. Neither household promised the whole Rs 3,00,000/-, so the amount the caterer was actually promised appears in neither book as a single figure. It exists in the contract, and in whatever the two households agreed between themselves.
A shared loan behaves the same way, and the consequence is worth stating in the harshest terms available. No single balance sheet holds the total amount lent to the borrower, so that total appears nowhere on either one as a single figure. The total lives in two places instead. One is the loan agreement, signed by the borrower and both lenders. The other is the arrangement between the lenders, and the arrangement between the lenders is where the whole picture actually sits. Anybody who wants the full size of the loan has to read the arrangement, and the arrangement is not a balance sheet line.
Where does the full amount lent to the borrower appear on either lender's balance sheet?
Suvarna Commercial Bank Limited writes a Rs 40,000 crore slice as shared loans at an 80 per cent share instead of holding all of each. Add up what both lenders now record against that slice.
One loan, two lenders behind it. Before reading on, predict whether each share is paid for out of the same kind of money.
Whose money funds each share?
Funding is what ties lending back to the other side of the same counter. A bank funds what it lends mainly out of what it owes to depositors. Put Rs 1,92,000 crore of deposits at Suvarna Commercial Bank Limited beside its net worthThe shareholders' own money still sitting in the business, being whatever is left once every claim from outside has been settled. of Rs 24,000 crore and the division comes to Rs 8.00 of deposits for every single rupee of net worth. A lender that takes no deposits pays for its lending out of the market instead. Set Rukmini Finance Limited's market borrowingMoney raised from other institutions and investors rather than from savers, due back on the terms struck when it was raised and needing a replacement lender on the day it matures. of Rs 14,400 crore beside its net worth of Rs 3,600 crore and the division comes to 4.00 times.
On a shared loan the two shares are funded out of two entirely different sources on two entirely different sets of terms, and that difference is usually the reason two lenders enter such an arrangement in the first place. A deposit is owed to a household or a business that can ask for it back, either whenever it likes or at a date already agreed. A market borrowing is owed to another institution on terms fixed the day it was raised, and it has to be replaced when it matures. A deposit and a market borrowing are not two flavours of the same thing.
Standing only behind the lender's desk shows half the transaction. The same arrangement reads differently from the other end. The depositor whose balance ultimately funds a bank's share of some loan has no relationship with that borrower, has never been told which loans the money reached, and has no way of finding out. The silence is not a defect. Not knowing where a deposit went is the ordinary condition of holding one, and that condition is why what stands behind a deposit is settled by an authority rather than by the depositor reading a loan book.
Who books the interest, and who absorbs a loss?
Interest and loss belong in one row rather than two, and separating them is exactly where people go wrong. Each lender books interest on its own share. Each lender absorbs any loss on its own share. Same proportion, same time, no renegotiation in between. The proportion that governs both is the funding proportion, the one fixed when the loan was written, and it is not revisited when the loan turns out well or badly.
The reason interest and loss have to travel together is that they are the two halves of one bargain, and a share of one without the matching share of the other would be a different arrangement wearing this one's name. A lender funding 80 per cent of a loan and booking 80 per cent of the interest carries 80 per cent of whatever goes wrong. A lender funding 20 per cent books 20 per cent of the interest and carries 20 per cent of whatever goes wrong. Neither of those two sentences can be varied on its own.
Some arrangements put one partner at the front of any loss, so it is emptied out before the second partner is reached at all. Such an ordering is a loss-sharing arrangementA side agreement running alongside a shared loan that changes the order in which the two parties meet a loss, rather than the shares they funded., a separate agreement rather than a feature of the shared loan itself. The conditions under which it is permitted are set by the Reserve Bank of India at rbi.org.in, and loss sharing is set out separately.
On a shared loan with no separate agreement alongside it, in what proportion does each lender absorb a loss?
A bank writes part of its book as shared loans instead of holding all of each. Before reading on, predict what happens to its credit to deposit ratio.
What happens to the ratios struck on that balance sheet?
Every ratio struck on a balance sheet is struck on what that balance sheet records. Nothing subtle is going on there. A ratio is defined on what the balance sheet records, so a ratio can move without anything about the lending moving at all. Here is the arithmetic, run on figures that divide cleanly so that every step can be checked with a pen.
Suvarna Commercial Bank Limited put Rs 1,44,000 crore of advances against Rs 1,92,000 crore of deposits in the stated year. Do the division yourself rather than accepting the answer. Rs 1,44,000 crore over Rs 1,92,000 crore is 75.00 per cent, the credit to deposit ratioHow much a lender has out on loan for every rupee of deposits it holds, written as a percentage. Deposits are the base, and a figure quoted without that base cannot be checked by anybody., struck on deposits as the base. Now take a Rs 40,000 crore slice of that book, an arithmetic illustration rather than a reported breakdown of the bank's advances, and suppose it had been written as shared loans with Suvarna Commercial Bank funding 80 per cent of each rather than all of each.
| The line | Held whole | Written at an 80 per cent share |
|---|---|---|
| The slice under discussion | Rs 40,000 crore | Rs 40,000 crore |
| Recorded by Suvarna Commercial Bank on that slice | Rs 40,000 crore | Rs 32,000 crore |
| Total advances recorded by Suvarna Commercial Bank | Rs 1,44,000 crore | Rs 1,36,000 crore |
| Deposits of Suvarna Commercial Bank | Rs 1,92,000 crore | Rs 1,92,000 crore |
| Credit to deposit ratio, on deposits as the base | 75.00 per cent | 70.83 per cent |
| Money that actually reached borrowers | Rs 1,44,000 crore | Rs 1,44,000 crore |
Work it through once. The bank's own recorded share of the slice falls from Rs 40,000 crore to Rs 32,000 crore, a fall of Rs 8,000 crore, so total advances read Rs 1,36,000 crore rather than Rs 1,44,000 crore. Rs 1,36,000 crore over the same Rs 1,92,000 crore is 70.83 per cent, still on deposits as the base. The ratio has fallen by 4.17 points. Now look at what did not change: the same borrowers received the same money on the same terms, the deposits of Rs 1,92,000 crore did not move by a rupee, and the money that actually reached borrowers is Rs 1,44,000 crore in both columns.
One line carries the plainest form of it. A lower ratio here is not less lending. A lower ratio here is less recorded lending. Less lending and less recorded lending are two different claims about two different things, and only the second is the claim the arithmetic supports.
What does the same movement look like on the other set of books?
Both sides of the transaction are worth stating, and the other side is more interesting than the mirror image people expect. The Rs 8,000 crore that Suvarna Commercial Bank stopped recording did not evaporate: Rukmini Finance Limited records it. One set of books falls by Rs 8,000 crore and the other rises by the same Rs 8,000 crore, so the pair nets to nothing. Add the two records together. Rs 1,36,000 crore plus Rs 8,000 crore is Rs 1,44,000 crore, the same figure as before. Not one rupee has been counted twice and not one rupee has gone missing.
The ratio is where the mirror image breaks down. Rukmini Finance takes no deposits at all, so there is no credit to deposit ratio on its side to move in the opposite direction. The Rs 8,000 crore lands on a book whose bases are assets under managementThe total size of the book a lender or manager is running, used as the base for ratios in businesses that have no deposits to divide by. of Rs 18,000 crore, borrowings of Rs 14,400 crore and net worth of Rs 3,600 crore. As an arithmetic illustration, funding the whole addition in the market and holding net worth still, borrowings of Rs 22,400 crore over net worth of Rs 3,600 crore reads 6.22 times against 4.00 times before. Same rupees, a completely different number, on a base that has nothing to do with deposits.
So a reader looking at one balance sheet alone sees half a movement, and a reader comparing the two ratios across the two lenders is comparing numbers that were never built to be compared. The arithmetic supports no conclusion about which lender is better placed.
A lender's credit to deposit ratio falls by four points. Name the two explanations a reader reaches for first, and the third one the arithmetic adds.
Rukmini Finance Limited picks up the Rs 8,000 crore share. What does its own credit to deposit ratio read afterwards?
What does the borrower see differently?
Almost nothing changes. A reader who has just watched a balance sheet rearrange itself reasonably assumes something rearranged for the borrower too, and nothing did. One agreement. One amount. One repayment schedule. One place the money arrives from and one place it goes back to. The split that governs everything above governs none of that.
One thing does change for the borrower and it is not a number: who the borrower is actually obliged to, and therefore whose agreement is needed before any term of the loan can be altered. A request to reschedule, to prepay, to release something pledged, or to change anything else written into the agreement now has to reach whoever the agreement says it must reach, and that is a matter of the agreement rather than of the balance sheets. Whose agreement is needed is not obvious from the outside, and a borrower has no way of working it out from the repayment schedule.
The Reserve Bank of India at rbi.org.in sets what a borrower must be told about the lenders behind a loan, and what must be told to whom before a term of the loan is changed.
What actually changes for the borrower when a loan is shared rather than held whole?
How does anybody actually use this distinction?
An analyst reading a lender's results uses it as a question rather than as an answer. Before writing down anything about a ratio that moved, she asks what the balance sheet is recording this year and what it has stopped recording, and she reads whatever the lender has published about arrangements with other lenders alongside the ratio rather than after it. Reading the arrangements takes a little more time, and it changes what the ratio is allowed to prove.
A lender's own treasury uses it from the other direction. A shared loan lets a lender put money to work on a loan it would otherwise have funded entirely or not at all, and it changes what has to be funded out of its own liabilities to do so. The capitalThe lender's own money standing behind what it has lent, held so that a loss falls on the owners of the business before it reaches anybody the business owes. a lender must hold against the exposure it carries is a separate subject with its own rules, set by the Reserve Bank of India at rbi.org.in.
A depositor and a household borrower both take away the same practical point. A headline about a lender lending less may be a headline about recording rather than about lending, and the two feel identical in a news report. Nobody outside the lender can separate them from the ratio alone. Where the separation exists at all it exists in what the lender has published about the arrangement. A reader who wants it has to go and look for it.
What goes wrong when the ratio is read on its own?
Reading a lower credit to deposit ratio as less lending
Somebody compares two lenders, or one lender across two periods, sees the credit to deposit ratio fall, and writes down that the lender has pulled back. The inference is reasonable and it is available to anybody holding the two figures, and its cheapness is what makes it so common.
The wrong reading lives in the ratio's construction rather than in anybody's judgement. The ratio is struck on recorded advances over deposits, and a loan written as a shared loan is recorded once at a fraction of its size and once on somebody else's books. Nothing in the two figures announces that. The reader will look for a cause, find none in the lending, and settle on caution or on weak demand. Both explanations are genuinely available. Neither of them is what happened.
Put a price on that. A judgement about whether credit is reaching borrowers, reached through a number that only ever measured where credit is being written down. And from the other end of the same transaction, the lender that picked up the other share shows the opposite movement on bases that are not deposits at all, so a reader holding one set of books is holding half a movement and cannot tell.
The repair is a step in a routine and not a state of mind. Put one question in front of every ratio struck on a balance sheet: what is that balance sheet writing down this year, and what has it stopped writing down? Then put the lender's own account of its arrangements with other lenders beside the ratio before drawing anything from it. What must be disclosed about such an arrangement is set by the Reserve Bank of India at rbi.org.in. None of that is visible in the ratio itself, and its invisibility is exactly why careful people keep making the mistake.
Which parts of this are somebody else's to decide?
Almost everything a reader wants next, as it turns out. Which arrangement is better is settled nowhere in the arithmetic: higher recorded advances prove nothing and lower recorded advances prove nothing either. Where the record of a loan lives, and what follows from that, is a much smaller claim and the only one the arithmetic will carry.
Seven things touched on above are set by the Reserve Bank of India and every one of them moves. Each appears below as a row carrying the body that decides it. Type a remembered value into one of those rows and the card stops asking to be checked. A remembered value reads as settled, it gets quoted, and on the morning the requirement changes it is not stale but plainly incorrect. Where the capital standard originated is worth naming once: it began at the Bank for International Settlements at bis.org, and what applies in India is the Reserve Bank of India's to decide.
Every row below is set by the body sitting in it, every one of them changes, and not one of them carries a value. The only current version of a row is the one published at the site beside it, so each row is read there on the day it is needed.
| The row left blank | Who fills it, and where to check |
|---|---|
| What share of a jointly funded loan each lender may hold | Reserve Bank of India, rbi.org.in |
| How a jointly funded loan must be carried and reported on each lender's books | Reserve Bank of India, rbi.org.in |
| The capital a lender must hold against an exposure it carries | Reserve Bank of India, rbi.org.in; standard originated at the Bank for International Settlements, bis.org |
| How a loan transferred from one lender to another must be treated | Reserve Bank of India, rbi.org.in |
| What the arrangement between two lenders on one loan must record | Reserve Bank of India, rbi.org.in |
| How a lender must discloseWhat a business is required to publish about something it has done, so that anybody reading its results can see it rather than having to guess at it. an arrangement with another lender | Reserve Bank of India, rbi.org.in |
| When a loss-sharing arrangement between two lenders is permitted | Reserve Bank of India, rbi.org.in |
| What stands behind the deposits funding a bank's share, and what it does not reach | Deposit Insurance and Credit Guarantee Corporation, dicgc.org.in |
A second kind of shared arrangement adds further rows underneath these, each carrying whichever body decides it.
The Bank for International Settlements is named exactly once above. What is it named for, and what is it not named for?
Covered elsewhere. What a shared loan is, who does what inside one and how the arrangement is put together are settled separately and are assumed here. The return either lender earns on the capital standing behind its share is covered separately, as are return on equity and return on assets.
The capital a lender must hold against an exposure is named above and explained separately. Selling or transferring a loan outright from one lender to another, packaging a pool of loans, and side agreements that put one partner at the front of any loss are each covered separately. How a lender assesses a borrower is covered separately and is absent from every section above, deliberately.
The permitted share, the reporting treatment, the capital held, the treatment of a transferred loan and the conditions on a loss-sharing arrangement all belong to the Reserve Bank of India and all of them change; the current text of each sits at rbi.org.in. The Bank for International Settlements is named at bis.org once as the origin of the capital standard rather than as the authority over it.
Where do the seven blank rows get filled?
Each blank row above is a form to complete rather than a gap. The address beside each body does the work the missing value would have done, and it goes on doing that work after the value has changed. A printed value would not. The current requirement, share, treatment or condition sits with the body named in the row.
| Named at | What to read there | Site | Confirmed |
|---|---|---|---|
| Reserve Bank of India | The share of a jointly funded loan each lender may hold, and how such a loan must be carried and reported on each set of books | rbi.org.in | 23 August 2026 |
| Reserve Bank of India | The capital held against an exposure a lender carries, and how a loan transferred from one lender to another must be treated | rbi.org.in | 23 August 2026 |
| Reserve Bank of India | What the arrangement between two lenders on one loan must record, how a lender must disclose it, and when a loss-sharing arrangement is permitted | rbi.org.in | 23 August 2026 |
| Deposit Insurance and Credit Guarantee Corporation | What stands behind the deposits that fund a bank's share of any loan, and what that cover does not reach | dicgc.org.in | 23 August 2026 |
| Bank for International Settlements | Where the capital standard began. Nothing about what applies in India, which the Reserve Bank of India decides | bis.org | 23 August 2026 |
Suvarna Commercial Bank Limited and Rukmini Finance Limited are invented.
Educational material. Not advice on any investment, tax, budget or market position.