RBI Aligns NBFC Provisioning Norms With DLG Arrangements

RBI amended and refined the framework relating to income recognition, asset classification and provisioning (‘IRACP’) for Non-Banking Financial Companies (‘NBFCs’) by way of the Reserve Bank of India (Non-Banking Financial Companies – Income Recognition, Asset Classification and Provisioning) Amendment Directions, 2026 (‘Amendment Directions’), which clarify the provisioning treatment of Default Loss Guarantee (‘DLG’) in the Expected Credit Loss (‘ECL’) framework while strengthening disclosures.

The Amendment Directions are effective immediately and introduce the following key changes:

i. ECL Measurement with DLG: For loan portfolios covered by DLG arrangements, NBFCs may consider the DLG when determining provisions under the ECL framework across all stages, subject to requirements under the Indian Accounting Standards (‘IndAS’) which require that the DLG is integral to the contractual terms of the loans and is not recognised separately under the IndAS;