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DLG Provisioning Rule: Fintech Pushback on RBI Norms

3 June 20251 min read
BANKING & FINANCEDLG ProvisioningRule: FintechPushback on RBINorms3 June 2025safalsetu.com

Why in the news

Fintech groups are unhappy that DLG cover cannot reduce provisioning on stressed loans, and are collecting data to present to RBI.

Key facts

  • Regulated entities (REs) must provision fully on LSP-originated loans; setting off a DLG is prohibited.
  • Deadline: 30 September 2025.
  • DLG cover must not exceed 5% of the amount disbursed.
  • Digital lenders must also offer multiple loan options; fintechs fear lower conversion.

Concerns and way forward

  • Industry calls it capital-inefficient and likely to discourage LSP-based lending.
  • Impact data will go to RBI before the deadline, seeking reconsideration.
  • RBI is open to talks but keeps provisioning with REs.
  • Possible effects: slower origination, higher capital needs, small fintechs hit hardest.

Exam angle

  • DLG = Default Loss Guarantee; LSP = Loan Service Provider.
  • Cap: 5%; date: 30 September 2025.

Test yourself

1. Under RBI's digital lending norms, what is the maximum DLG cover on an outstanding loan portfolio?

DLG cover must not exceed 5% of the total amount disbursed.

2. By which date must regulated entities comply with RBI's full provisioning requirement on LSP-sourced loans?

The stated compliance deadline is 30 September 2025.

3. In the DLG provisioning debate, what do fintech bodies say the rule causes?

Fintechs argue that full provisioning despite DLG cover amounts to double provisioning.

This topic is part of Daily Current Affairs 3 June 2025 (20 topics).

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