Fintech Industry Seeks Relief from RBI’s New DLG Norms

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Fintech Industry Seeks Relief from RBI’s New DLG Norms

India’s fintech sector is raising red flags over the Reserve Bank of India’s (RBI) new rules on Default Loss Guarantees (DLGs), which may lead to what they call "double provisioning" for lenders.

Under the new guidelines, the RBI has barred lenders from using DLGs offered by Loan Service Providers (LSPs) to reduce the provisions they must set aside for loans that could go bad. This means that even if an LSP promises to cover a portion of the potential loss, the lender must still make the full provision as if there were no such guarantee.

Fintech associations believe this could increase the financial burden on lenders, especially in partnerships where DLGs are a common feature. They argue that the new rules could slow down credit growth and reduce the willingness of lenders to work with fintechs and LSPs.

To address this, fintech bodies are now gathering impact data from their members to present a clearer picture to the RBI. They aim to show how the new rules could negatively affect credit availability and financial inclusion—especially in underserved markets.

The RBI has set a compliance deadline of September 30 for these new provisioning norms. Industry groups are hoping that with the right data and a strong case, they can persuade the central bank to offer some flexibility or relief.

Until then, the fintech community remains cautiously optimistic, working behind the scenes to ensure that innovation in digital lending is not stifled by overregulation.

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