Major player on this sector said, it's a positive development which will strengthen credit penetration and boost the digital lending ecosystem.
Mumbai : The Reserve Bank of India (RBI) has granted its approval for First Loss Default Guarantee (FLDG) framework. The announcement was made on Thursday. FLDG scheme allows Indian fintechs to partner with banks and NBFCs. This decision is seen as a big positive for data-tech NBFCs and fintech's. Further, the move will strengthen the digital lending ecosystem.
RBI said in a statesment, "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." It also added, "FLDG arrangements conforming to these guidelines shall not be treated as ‘synthetic securitization’ and/or shall also not attract the provisions of ‘loan participation."
Major player on this sector said, as per the FLDG model, the first hit on a default is taken by the fintech firm that originated the loan. It's a positive development which will strengthen credit penetration and boost the digital lending ecosystem. RBI has decided to come out with a regulatory framework for permitting FLDG arrangements in Digital Lending which will promote more transparency and discipline in digital lending environment. Similarly, proposing the framework for widening of scope of resolution of stressed assets indicate that RBI is right on the track of instilling harmonization across Regulated Entities.
Meanwhile, experts 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.
RBI said in a statesment, "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." It also added, "FLDG arrangements conforming to these guidelines shall not be treated as ‘synthetic securitization’ and/or shall also not attract the provisions of ‘loan participation."
Major player on this sector said, as per the FLDG model, the first hit on a default is taken by the fintech firm that originated the loan. It's a positive development which will strengthen credit penetration and boost the digital lending ecosystem. RBI has decided to come out with a regulatory framework for permitting FLDG arrangements in Digital Lending which will promote more transparency and discipline in digital lending environment. Similarly, proposing the framework for widening of scope of resolution of stressed assets indicate that RBI is right on the track of instilling harmonization across Regulated Entities.
Meanwhile, experts 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.
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