MUMBAI: The RBI’s norms on first loss default guarantee (FLDG) cover are likely to curb lending volumes in unsecured personal and business loans, according to rating agency Crisil. FLDG is a guarantee extended to lenders by corporate entities for loans.
Availability of FLDG cover has enabled fintechs scale up digital lending as it emboldened traditional lenders like banks and non-banking finance companies to take on their books unsecured loans extended without human intervention using analytics.
Last week, the RBI limited the FLDG to 5% of the loan portfolio and disallowed corporate guarantees as a form of FLDG. “This could dampen business volume in segments where FLDGs are currently higher than the permissible limit,” said Crisil. “We estimate that a substantial proportion of partnership/ co-lending arrangements where FLDG is present — especially those with unsecured personal loan and business loan lenders — currently carry an FLDG cover of above 5%. The new guidelines would affect these segments,” Crisil senior director Ajit Velonie said.
Availability of FLDG cover has enabled fintechs scale up digital lending as it emboldened traditional lenders like banks and non-banking finance companies to take on their books unsecured loans extended without human intervention using analytics.
Last week, the RBI limited the FLDG to 5% of the loan portfolio and disallowed corporate guarantees as a form of FLDG. “This could dampen business volume in segments where FLDGs are currently higher than the permissible limit,” said Crisil. “We estimate that a substantial proportion of partnership/ co-lending arrangements where FLDG is present — especially those with unsecured personal loan and business loan lenders — currently carry an FLDG cover of above 5%. The new guidelines would affect these segments,” Crisil senior director Ajit Velonie said.