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RBI Tightens Default Loss Guarantee (DLG) Rules: What NBFCs and Fintechs Need to Know

  • 29-May-2025
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The Reserve Bank of India (RBI) has issued a directive that could significantly reshape how Non-Banking Financial Companies (NBFCs) and fintechs collaborate in the digital lending space.

Key Update

NBFCs can no longer rely on Default Loss Guarantees (DLGs) provided by fintech partners to reduce their loan loss provisions.

Deadline to comply: September 30, 2025

What This Means

  • NBFCs must now provision for the full expected credit loss—no exceptions, even with a DLG in place.

  • Fintechs will need to restructure their DLG-based models and explore alternative approaches.

  • The entire credit risk now lies with the NBFC, making risk management more critical than ever.

This move by the RBI aims to bring greater transparency, accountability, and real risk visibility into digital lending partnerships.

Implications for NBFCs

NBFCs may face pressure on profitability and risk frameworks unless they:

  • Reassess loan sourcing models

  • Strengthen underwriting processes

  • Conduct detailed reviews of fintech partnerships

Action Plan for NBFCs

  • Review all fintech collaborations and associated agreements

  • Update internal risk management and provisioning frameworks

  • Consult legal and compliance teams to ensure alignment with the new guidelines

Action Plan for Fintechs

  • Explore new models for risk-sharing that align with RBI guidelines

  • Invest in stronger credit underwriting practices

  • Maintain open and transparent communication with NBFC partners

Need Expert Guidance?

We help NBFCs and fintechs navigate regulatory changes and adapt their models effectively.

Contact us for a free consultation
Phone: +91 93113 47006

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