{"id":8499,"date":"2023-06-26T13:17:32","date_gmt":"2023-06-26T13:17:32","guid":{"rendered":"https:\/\/signdesk.com\/in\/?p=8499"},"modified":"2025-09-17T07:16:38","modified_gmt":"2025-09-17T12:46:38","slug":"rbi-digital-lending-guideline-2023","status":"publish","type":"post","link":"https:\/\/melento.ai\/en-in\/blog\/rbi-digital-lending-guideline-2023","title":{"rendered":"RBI Allows DLG for Banks – Digital Lending Guidelines 2023"},"content":{"rendered":"

RBI Revamps Digital Lending Guidelines – DLG Permitted\u00a0<\/strong><\/span><\/h2>\n

The Reserve Bank of India (RBI) has released Guidelines for DLG (Default Loan Guarantee) as part of its Digital Lending Guidelines. According to the guidelines, banks regulated by the RBI can now enter DLG agreements with other lenders and lending service providers.<\/p>\n

Released on June 8, 2023, the DLG guidelines<\/a> abrogate RBI\u2019s previous decision to classify DLG agreements under synthetic securitization or subject them to the provisions of full loan participation. Under either of these tenets, the entire loan amount was guaranteed to the bank by any entity offering lending services under the bank\u2019s purview.<\/p>\n

Now, lending partners will be required to compensate banks only up to a certain percentage of loan defaults. This development could potentially boost digital lending by bolstering credit penetration into underserved parts of the country.<\/p>\n

What is DLG?<\/strong><\/span><\/h2>\n

DLG or Default Loan Guarantee is a contractual arrangement between a Regulated Entity (RE), i.e., a bank, and a lending service provider (LSP)\u00a0 or another RE, wherein the latter agrees to compensate the former for a loss due to default.<\/p>\n

The compensation can be up to a certain percentage of the loan portfolio of the bank offering the loan.<\/p>\n

DLG is used interchangeably with FDLG or First Default Loan Guarantee.<\/p>\n

\u00a0A legally enforceable contract must back DLG arrangements and can be cash deposits, fixed deposits, or bank guarantees. This contract is required to contain the following elements –<\/p>\n

    \n
  1. The extent of the DLG cover<\/li>\n
  2. The form in which DLG cover is to be maintained with the RE<\/li>\n
  3. The explicit timeline for DLG invocation<\/li>\n
  4. Disclosure requirements<\/li>\n<\/ol>\n

    Banks may only accept DLG as either cash deposits, fixed deposits maintained with a Scheduled Commercial Bank (SCB), or bank guarantees in favor of the bank itself.<\/p>\n

    Additionally, banks can only enter into DLG agreements with LSPs or other banks incorporated as companies under the Companies Act 2013 and with whom they\u2019ve also entered into outsourcing agreements.<\/p>\n

    What should Banks & Fintech Firms Know About RBI\u2019s FDLG<\/p>\n

    Here are the key takeaways for regulated entities and financial institutions from RBI\u2019s guidelines on DLG.<\/p>\n