As per the first loan default guarantee (FLDG), fintech news, the Reserve Bank of India has imposed a 5% limit on it that fintechs provide to lending partners. The central bank stated that RE (regulated entities) must ensure their overall default guarantee is not greater than 5% of the portfolio sum. FLDG is the assurance provided by an unregulated entity to regulated lenders. The RE offers customers identified by an affiliated entity loans in favor of assurances against the initial portion of defaults. In some instances, this used to reach 100%.

RBI has indicated that banks and NBFCs can engage in FLDG arrangements with regulated entities and other LSP (loan service providers). This allows early-stage fintechs to partner with NBFCs and financial institutions in order to procure loans without waiting for an NBFC license. The RBI warned that any NPA estimation should adhere to existing guidelines and not be mitigated against FLDG RBI guidelines with partners.

RBI stated that the default loss guarantee (DLG) amount will not be offset against the original individual loans. To ensure oversight of lenders’ relationships with LSPs that are not regulated, it established that every lender has FLDG policies approved by the board. It has requested that fintechs disclose forthright information regarding their default guarantee agreements and the number of lenders with whom they have signed agreements.

The DLAI (Digital Lending Association of India) released a statement indicating that it will promote the growth of the digital lending sector and make it easier for all participants to enter this market. Providing information on the structure for DLG agreements between two parties has been a top request from the majority of sector participants. Today’s circular explicitly specifies facts on scope, structure, eligibility, form, cap, exceptions and disclosure requirements, according to Jatinder Handoo, DLAI’s chief executive officer.

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