REGULATORY · COMPETITIVE · INDIA
RBI reinstates DLG recognition for NBFC provisioning
Economic Times
16 Feb · 5:53 AM
Change
The Reserve Bank of India has reinstated NBFCs’ ability to recognize default loss guarantees (DLGs) in loan-loss provisioning for fintech-sourced loans, effective immediately.
Why it matters
The change reverses the prior requirement that NBFCs ignore fintech LSP-provided DLGs when computing provisions for stressed/risky loans, which had driven higher credit costs and balance-sheet usage. With DLGs again eligible when they are integral to the loan arrangement, NBFCs can reduce buffers relative to the earlier framework and reprice the economics of fintech partnership books. The framework is effective immediately, so it can affect provisioning approaches in the current reporting cycle rather than waiting for a future compliance date. RBI also requires dynamic updating of expected losses upon each DLG invocation, creating a stepwise reduction in recognized protection over time. The shift alters incentives for fintech loan origination volumes by changing the provisioning drag borne by partner NBFCs.
Implications
- • Lower provisions on eligible fintech-sourced books vs May 2025 framework
- • Provisioning becomes dynamic as DLG cover reduces after each invocation
- • Fintech partnership loan economics shift, affecting origination capacity
- • Quarterly provisioning assumptions for 2025 portfolios are reset immediately
Who is affected
- • Non-banking financial companies (NBFCs) using fintech/LSP sourcing
- • Fintech lending service providers offering DLGs
- • Digital lending partnership portfolios and their investors/warehouse lenders
- • NBFC finance and risk teams setting ECL/provisioning models
Source
Read full article on Economic Times →
Topics
World & Politics Policy & Regulation Law & Public Safety Compliance Finance & Banking Banking Regulation Fintech & Payments