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ARTICLE · 16 JUNE 2023

Guidelines On Default Loss Guarantee (DLG) In Digital Lending

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The Reserve Bank of India (the ‘RBI') vide circular dated June 08, 2023 ("Guidelines") has finally permitted, subject to certain requirements, the arrangement of the Default...

IndiaTechnology
AKS Partners
AKS Partners

The Reserve Bank of India (the ‘RBI') vide circular dated June 08, 2023 (“Guidelines”) has finally permitted, subject to certain requirements, the arrangement of the Default Loss Guarantee (“DLG”) between Regulated Entities (“REs”) and Lending Service Providers (“LSPs”) or between two REs in Digital Lending.

I . DEFINITION OF DLG

The Guidelines has now defined DLG. In simpler terms, it is a contractual arrangement between REs (such as banks and NBFC) and LSPs or two REs under which the latter agree to compensate the former up to a certain amount in case of losses due to defaults of loan portfolios of REs while undertaking Digital Lending. RBI has further clarified that DLG arrangement confirming to the Guidelines shall not be treated as ‘synthetic securitization' and also shall not attract the provision of ‘loan participation'.

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