Escrow Basics
|
September 1, 2025
-
6 MINS READ

Co-lending has become a key part of modern credit distribution in India. Banks and non-banking financial companies (NBFCs) share the lending market. This model allows banks to explore new markets while NBFCs gain extra capital to grow. However, managing payouts, settlements, and compliance between two lending partners is complicated. Here is where UPI payout APIs connected with escrow-based settlements start to make a difference.
The Unified Payments Interface (UPI), built and managed by the National Payments Corporation of India (NPCI), has transformed retail payments. Now, its payout APIs are bringing similar efficiency, instant settlements, and transparency to complex financial systems like co-lending. When paired with escrow arrangements, this integration ensures secure fund flow, precise reconciliation, and adherence to RBI guidelines.
To simplify it: UPI payout APIs offer speed and automation, while escrow provides security and compliance. Together, they improve how co-lending settlements work.
Understanding Co-Lending and Its Settlement Challenges
Co-lending aims to combine the benefits of banks’ low-cost capital with NBFCs’ strong distribution networks. Yet, the settlement process often presents challenges. Here’s why:
Multiple Stakeholders, Multiple Rules
Banks and NBFCs must share principal, interest, and fees in the exact ratios specified in their partnership agreements. Even a slight mismatch can lead to disputes or regulatory risks.
Manual Reconciliation Is a Roadblock
Traditional settlement methods often rely on spreadsheets, manual calculations, and slow reconciliation. This not only delays fund movement but also raises the risk of errors.
Compliance Pressure from Regulators
The Reserve Bank of India (RBI) has clear rules for co-lending agreements. These include requiring that all fund flows go through an escrow account to maintain transparency and traceability. Any deviation can expose both partners to penalties or reputational risks.
This means that without automation and trust mechanisms, co-lending settlements can quickly become chaotic.
Why Escrow Accounts Matter in Co-Lending
An escrow account serves as the neutral ground for managing co-lending funds. All disbursements, repayments, and revenue-sharing go through this account. This setup ensures that no party gets an unfair advantage and that compliance requirements are met.
The escrow account serves three key roles:
Trust Anchor: Neither the bank nor the NBFC directly holds the settlement funds until the agreed conditions are met.
Compliance Tool: Every transaction is recorded and audit-friendly, in line with RBI requirements.
Risk Mitigator: It prevents disputes by ensuring transparent fund distribution based on pre-agreed ratios.
However, while escrow accounts guarantee fairness, they do not automatically resolve delays or inefficiencies. This is where UPI payout APIs come into play.
Enter UPI Payout APIs: The Missing Link
UPI payout APIs enable platforms to send instant, automated payments to multiple beneficiaries, such as customers, investors, or lending partners. Unlike traditional NEFT or RTGS transfers that can take hours or a full business day, UPI payout APIs settle instantly, 24/7.
In the co-lending context, this means:
Funds can be instantly disbursed to borrowers via the escrow account.
Repayments can be split and credited to bank and NBFC partners without manual input.
Lenders can reconcile transactions in real time, reducing administrative work.
It goes beyond speed. It involves precision, transparency, and the ability to scale effectively.
The Impact of UPI Payout APIs on Escrow-Based Co-Lending Settlements
1. Faster Loan Disbursement to Borrowers
Borrowers do not want to wait for funds after loan approval. With UPI payout APIs linked to escrow accounts, disbursement happens instantly. This enhances customer experience, minimizes drop-offs, and helps lenders stay competitive in a busy credit market.
2. Automated Splits Between Lending Partners
Traditionally, splitting repayments in 80:20 or 70:30 ratios between banks and NBFCs required batch processing. Now, APIs can automate these splits at the source. Once repayments enter the escrow, UPI payout APIs distribute funds to each partner quickly and accurately.
3. Real-Time Reconciliation
Rather than waiting weeks or months for reconciliation, lenders can track fund movements in real time. This reduces disputes, aids auditors, and builds confidence between partners.
4. Lower Operational Costs
Shifting from manual processes to automated payouts saves institutions on labor costs, reduces mistakes, and minimizes settlement delays. Over time, this cuts the cost per transaction significantly.
5. Stronger Compliance and Audit Readiness
Since all transactions go through escrow and every UPI transaction is timestamped and traceable, lenders can quickly create audit-ready reports. This keeps them aligned with RBI expectations and builds trust with investors.
A Closer Look: How UPI Payout APIs and Escrow Work Together
Consider a real-world example to see the benefits clearly:
A borrower applies for a loan under a co-lending partnership.
Once approved, the total loan amount is credited to the escrow account.
The UPI payout API immediately transfers the borrower’s share from the escrow into their bank account.
When the borrower repays, funds are collected into escrow.
The payout API then automatically divides the repayment between the bank and NBFC based on the agreed ratio.
The outcome? Every transaction is instant, transparent, and compliant eliminating endless spreadsheets or back-and-forth communication.
Challenges That UPI Payout APIs Solve in Co-Lending
Delayed Settlements: Resolved through immediate payouts.
Human Error in Splits: Fixed by automated allocation.
Audit Complexity: Simplified with digital records and escrow traceability.
Disputes Between Partners: Reduced through clear fund distribution.
Scalability Issues: Overcome with APIs built for high transaction volumes.
In short, UPI payout APIs turn co-lending settlements from a clunky, error-prone system into an efficient and scalable process.
Broader Industry Implications
The growth of UPI payout APIs in escrow-based co-lending has wider effects on India’s financial services sector:
Accelerated Credit Penetration: Faster disbursements allow more borrowers to access credit quickly, promoting financial inclusion.
Investor Confidence: Institutional investors are more likely to support NBFCs that can show transparent, automated settlements.
Fintech-Bank Partnerships: By reducing operational friction, APIs encourage more collaboration between banks and fintechs.
Regulatory Alignment: With escrow and UPI APIs, lenders can more easily meet RBI’s changing digital lending guidelines.
UPI’s adoption is already skyrocketing across India. Extending it into co-lending is simply the next logical step in digitizing financial infrastructure.
Internal Link: Where Castler Fits In
At this point, it’s evident that UPI payout APIs and escrow accounts are not just complementary they’re vital for modern co-lending. However, integrating both into a reliable, compliant settlement framework requires expertise.
That’s where Castler’s escrow solutions come in. Castler provides regulated, digital-first escrow infrastructure that integrates smoothly with payout APIs. Whether it’s automating co-lending settlements, managing compliance workflows, or ensuring clear fund flows, Castler acts as the trusted layer between partners.
Conclusion
Co-lending has the potential to reshape India’s credit landscape. But without efficient settlements, the model faces delays, disputes, and compliance risks. By combining UPI payout APIs with escrow-based settlements, lenders can achieve faster disbursements, automated partner splits, real-time reconciliation, and strong compliance.
This means lenders can focus on growing their portfolios and serving customers, rather than getting caught up in back-office complications.
If you’re looking for ways to make your co-lending settlements faster, safer, and compliant, consider how escrow and payout APIs can work together. Castler provides the infrastructure to make this possible.
Written By

Chhalak Pathak
Marketing Manager