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RBI Relaxes Fintech Lending Rules, Boosting NBFCs
16 Feb
Summary
- RBI has allowed non-bank lenders to use default loss guarantees.
- This change reduces provisioning pressure and boosts NBFC profitability.
- The revised framework is effective immediately, aiding digital lending growth.
The Reserve Bank of India (RBI) has reinstated the use of default loss guarantees (DLGs) for non-bank lenders, effectively rolling back restrictions imposed in May 2025. This regulatory adjustment allows NBFCs to factor DLGs into their loan loss provisioning, thereby reducing the need for higher capital buffers on loans sourced through fintech partners. The revised framework, effective immediately as of February 16, 2026, aims to alleviate provisioning pressures, enhance NBFC profitability, and expand balance-sheet capacity for new lending.
This policy reversal is expected to stimulate increased loan origination for fintech companies. Ravi Narayanan, MD & CEO of SMFG India Credit, stated that this regulatory clarity will support the industry in safely scaling digital lending and enabling NBFC-fintech partnerships to reach more under-penetrated retail customer segments. The RBI's previous directive in May 2025 had mandated NBFCs to exclude DLGs from loss buffer calculations, leading to substantial additional provisions for entities like SMFG India Credit, Credit Saison India, and Northern Arc Capital in the March 2025 quarter, impacting their profitability.
The RBI's move harmonizes the treatment of DLGs across various guidelines, including digital lending, co-lending, and credit-risk transfer. While supporting credit expansion and NBFC-fintech collaborations, the regulator also emphasizes that lenders must update loss estimates each time a guarantee is invoked, ensuring the protection's reducing availability is accounted for. This aims to prevent an overstatement of the protection provided by these guarantees.
