The Reserve Bank of India (RBI) has told Non-Banking Financial Companies (NBFCs) not to exclude fintech guarantees (DLGs) when calculating how much money to set aside for potential loan losses.

DLGs are risk-sharing deals in which fintechs cover up to 5% of a loan in the event of borrower default, as permitted by RBI rules.

Some NBFCs were using these guarantees to reduce their loan loss provisions; however, the RBI has now asked them to cease this practice.

This means NBFCs may need to set aside more capital, which could limit their ability to lend.

Industry bodies are asking RBI to reconsider, saying these DLG amounts are safe and should be allowed to offset provisions.

Companies like Paytm, which rely heavily on DLG-backed loans, could see reduced income and slower loan growth.

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