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ARTICLE · 20 JUNE 2023

RBI Guidelines On Default Loss Guarantee (DLG) In Digital Lending

King, Stubb & Kasiva
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Recently, the Reserve Bank of India (RBI) issued guidelines regarding Default Loss Guarantee (DLG) in digital lending. These guidelines are intended to govern agreements between Regulated Entities (REs)...

IndiaFinance and Banking
Vatsal Gaur
Vatsal Gaur
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Recently, the Reserve Bank of India (RBI) issued guidelines regarding Default Loss Guarantee (DLG) in digital lending.1 These guidelines are intended to govern agreements between Regulated Entities (REs) and Lending Service Providers (LSPs) or between two REs involving DLG, also known as First Loss Default Guarantee (FLDG). The RBI's decision to permit such arrangements is contingent on the immediate implementation of the circular's guidelines. Various sections of the Banking Regulation Act, Reserve Bank of India Act, National Housing Bank Act, and Factoring Regulation Act authorize the issuance of these regulations.

The recommendations of the Working Group on Digital Lending were the impetus for the Reserve Bank of India (RBI) to issue guidelines on Default Loss Guarantee (DLG) in digital lending. The RBI issued a press release on August 10, 2022, highlighting the recommendations of the working group, which included a review of First Loss Default Guarantee (FLDG).2

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