RBI Tightens Rules on FinTech DLGs, Impacting NBFC Provisions

RBI requires NBFCs to not use fintech DLGs for provisioning which affects digital lending numbers, profitability and involvement in sharing risks.

According to RBI’s directive, NBFCs should exclude DLGs provided by fintech firms when calculating provisions for loans that are in default. Digital lending platforms that rely on selling DLGs to distribute credit risk will be affected by the reversal.

As per the directive, by September 30, 2025, NBFCs must set aside enough money for expected credit losses, regardless of any DLG program. Until now, DLGs were limited at 5% and regarded as ways to boost the bank’s credit strength by reducing the required provisions.

As a result, NBFCs are forced to review their use of fintech-originated loans which account for less than 10% of their loan profiles. According to reports, fintech firms such as Paytm, MobiKwik and Moneyview may notice dips both in how many loans and financial products are sold and in fees they earn.

Last year’s financial challenges for a major fintech caused the RBI to decide on DLG which resulted in the fintech having to pay out Rs 172 crore under the obligations. The central bank hopes to make the financial system safer and encourage strong underwriting by NBFCs.

The RBI’s decision to tighten rules led to a big drop in SMFG India Credit’s FY25 net profit, thanks to the higher costs of provisions.

As the FinTech sector makes changes, the directive reinforces a shift towards more sustainable and risk-proof digital lending in the Indian financial market.