Category: Business

RBI Cracks Down on Default Loss Guarantees with Stricter Rules , The RBI defines Default Loss Guarantee as "a contractual arrangement between a Regulated Entity and a third party, whereby the latter guarantees to compensate the RE for losses due to default on a specified portion of the loan portfolio." These guarantees, whether explicit or implicit, must be legally enforceable, specified upfront, and structured according to RBI's risk containment standards. For example, when a fintech provides a 5% DLG on a ₹10 crore loan portfolio, it commits to compensating up to ₹50 lakhs in case of defaults, effectively serving as a credit enhancement mechanism.