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BankingNABARD / RBI

DLG-Backed Loan Pools: Fintechs Want Lighter Provisioning

2 June 20251 min read
BANKING & FINANCEDLG-Backed LoanPools: FintechsWant LighterProvisioning2 June 2025safalsetu.com

Why in the news

Digital lenders sought softer provisioning rules for DLG-covered loans in June 2025. The regulator holds that a guarantee cannot shrink the provision.

Key facts

  • Ind-AS lets risk mitigants like DLGs count while computing ECL; RBI says ECL must be full.
  • Industry bodies: Unified Fintech Forum (UFF) and FACE made formal representations.
  • In April, RBI wrote to four large non-bank lenders with high delinquencies in such pools.
  • RBI worries about high DLG payouts, weaker NBFC asset quality and FLDG being used as a securitisation substitute.
IssueFintech viewRBI view
DLG effectCuts effective credit riskRisk-sharing aid, not a replacement for underwriting
ProvisionDuplication wastes capitalNeeded for asset-quality discipline

Exam angle

  • DLG = Default Loss Guarantee (First Loss Default Guarantee, FLDG).
  • ECL = Expected Credit Loss.
  • LSP = lending service provider, the fintech partner.

Test yourself

1. In the DLG debate, what do fintechs say is the problem with current provisioning norms?

Both the fintech (LSP) and the regulated lender provide for the same loan pool.

2. What is RBI's position on ECL provisioning for DLG-backed third-party loans?

RBI directed full ECL provisioning irrespective of DLGs.

3. Which two bodies represented fintech concerns on DLG provisioning to RBI?

Unified Fintech Forum and Fintech Association for Consumer Empowerment made representations.

This topic is part of Daily Current Affairs 1 & 2 June 2025 (20 topics).

All topics of the dayDay quizJune 2025

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