Fintech companies ask RBI to clear FLDG

Several fintechs have asked the Reserve Bank of India (RBI) for a detailed framework to allow first loss default guarantee (FLDG) arrangements to continue with banks as well as a fresh set of guidelines to better help non-regulated entities understand their scope of operations, said multiple founders and industry executives.

The development comes months after the regulator notified the digital lending rules.

As part of the initial digital lending guidelines released in August last year, the RBI had said the recommendations pertaining to FLDG were “under examination”. It allowed FLDG structures to continue and asked entities to refer to securitisation of standard assets guidelines dated September 24, 2021.

The securitisation guidelines of September 2021 capped loan providers’ securitisation exposure to not more than 20% default guarantee, under any arrangement. However, in the case of some fintech partnerships, entities were offering almost 100% FLDG to banking partners and financial service companies.

“In a recent consultation with the RBI we have asked that FLDG be allowed between banks and non-banks and also among peer NBFCs (non-banking finance companies),” the chief executive of a Delhi-based fintech told ET on condition of anonymity. “The RBI prima facie looks okay with FLDG but it’s worried about contagion risks developing. If this is allowed between regulated entities then the regulator can always have a close supervisory watch on it.”