RBI Digital Lending Guidelines & FLDG Compliance

First Loss Default Guarantee (FLDG) Cap

The RBI circular issued in June 2023 permits Regulated Entities (REs like Banks and NBFCs) to enter into default loss guarantee arrangements with LSPs up to a hard cap of 5% of the outstanding loan portfolio. This mechanism secures the co-lending framework while preventing unregulated entities from taking excessive credit risk. Key parameters of the DLG framework include:

• Structure: The DLG must be backed by cash deposits, fixed deposits with lien, or bank guarantees in favor of the RE.
• Portfolios: Guarantees are calculated based on the outstanding principal at the pool level rather than individual accounts.
• Asset Classification: The responsibility of loan provisioning and NPA classification remains solely with the RE.

To understand the mechanical impact, consider a co-lending program with an anchor LSP and a partner NBFC. If the LSP originates a loan pool with a total principal outstanding of ₹10,00,00,000 (10 Crores), the maximum DLG that the LSP can extend to the NBFC is exactly 5.0%, which equals ₹50,00,000 (50 Lakhs). This security is typically placed upfront in an escrow bank account as a Fixed Deposit (FD) with a lien marked in favor of the NBFC. If the pool suffers defaults, the NBFC can invoke the guarantee and liquidate portions of the FD. However, once the cumulative default claims touch the ₹50,00,000 cap, the LSP is not legally liable to cover any further losses, transferring all remaining credit risk back to the NBFC's balance sheet.

Direct Disbursal and Flow of Funds

To eliminate shadow banking risks, the RBI mandates that all loan disbursements and service repayments must flow directly between the bank account of the borrower and the RE. This means tech startups (LSPs) cannot host escrow pool accounts to route borrower funds. Developers must use partner bank APIs to set up virtual accounts or direct IMPS/NEFT routes routed straight to the lender bank.

When implementing these payment pipelines, developers must configure direct API payloads. The LSP application triggers disbursements via the partner NBFC's nodal bank interface. Below is an example payload representing a direct disbursal transaction from the NBFC to the borrower's validated bank account:

{
  "requestHeader": {
    "apiVer": "1.0",
    "msgId": "MSG_881726_20260619",
    "timestamp": "2026-06-19T17:11:47+05:30"
  },
  "disbursalDetails": {
    "lenderId": "NBFC_AXIS_LEND_90",
    "loanAgreementNumber": "LA_2026_99812",
    "disbursalAmount": 45000.00,
    "deductions": {
      "processingFee": 1000.00,
      "gstOnProcessingFee": 180.00,
      "stampDuty": 100.00
    },
    "netDisbursableAmount": 43720.00,
    "destinationAccount": {
      "beneficiaryName": "Rajesh Kumar",
      "accountNumber": "9182738491827",
      "ifsc": "ICIC0000104",
      "bankName": "ICICI Bank"
    }
  }
}

Product Requirements: Key Fact Statement (KFS)

Before executing any loan contract, the application must display a standardized **Key Fact Statement (KFS)** containing: - The Annual Percentage Rate (APR) showing all charges. - Look-up period details (minimum 3 days to exit without penalty). - Details of the Grievance Redressal Officer. The user must sign this statement using Aadhaar OTP eSign before the loan API is triggered.

Asset Classification and Provisioning Rules

Under the RBI guidelines, loan assets must be categorized based on their days-past-due (DPD) status. The Regulated Entity is solely responsible for this tracking, and LSPs must sync their local collections databases in real time to reflect correct asset tags. The table below outlines the standard Special Mention Account (SMA) and Non-Performing Asset (NPA) classification structure: