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ARTICLE · 16 AUGUST 2023

Guidelines On Default Loss Guarantee (DLG) – Digital Lending

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The Reserve Bank of India ("RBI") has provided a much-needed fillip to the digital lending sector with its latest Guidelines on Default Loss Guarantee ("DLG") in Digital Lending ("Guidelines") on June 8, 2023.

IndiaTechnology
Rohan Bagai
Rohan Bagai
Gautam Ganjawala
Gautam Ganjawala
Arjun Uppal
Arjun Uppal
Bhargavy Ramesh
Bhargavy Ramesh
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The Reserve Bank of India ("RBI") has provided a much-needed fillip to the digital lending sector with its latest Guidelines on Default Loss Guarantee ("DLG") in Digital Lending ("Guidelines") on June 8, 2023. The Guidelines regulate DLG arrangements, commonly known as FLDG (First Loss Default Guarantee) in the industry.

A regulated entity, i.e., bank or NBFC ("RE") is now allowed to enter into arrangements with a lending service provider (an unregulated fintech, with whom the RE has an outsourcing arrangement) or another RE, to obtain a guarantee to compensate the RE on account of default in the loans provided by the RE, for a percentage of the loss.

The key fetters placed on such DLG arrangements are as follows:

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