Key Points
In its circular, RBI said, "arrangements between Regulated Entities (REs) and Lending Service Providers (LSPs) or between two REs involving default loss guarantee (DLG), commonly known as FLDG, has since been examined by the Bank and it has been decided to permit such arrangements subject to the guidelines laid down.".
On the development, Aditya Damani, Founder & CEO, of Credit Fair said, "As per the first loss default guarantee (FLDG) model, the first hit on a default is taken by the fintech firm that originated the loan..
Along similar lines, Atul Kumar Goel, MD and CEO of Punjab National Bank (PNB) said, "RBI has decided to come out with a regulatory framework for permitting First Loss Default Guarantee (FLDG) arrangements in Digital Lending which will promote more transparency and discipline in digital lending environment..
Meanwhile, Karthik Srinivasan, Senior Vice President, Group Head - Financial Sector Ratings, ICRA said, "While most of the regulated entities have already stopped taking FLDGs on new loans originated by non-regulated fin-techs, the proposal to announce a regulatory framework will bring in more clarity as digital lending is going to stay and increase substantially in scale. if non-regulated entities are allowed to offer FLDGs with necessary safeguards, it could provide further impetus to digital lending."..
In August last year, after taking into account the inputs received from a diverse set of stakeholders, RBI set up a regulatory framework to support the orderly growth of credit delivery through digital lending methods while mitigating regulatory concerns..
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