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RBI Allows DLG in ECL Provisioning for NBFCs

Current · Source: Reserve Bank of India · RBI/2025-26/210 · issued 13 Feb 2026 · ~2 min read
Quick answerRBI now permits NBFCs to factor Default Loss Guarantee (DLG) into Expected Credit Loss (ECL) provisions for digital lending and co-lending portfolios, aligning with IndAS. This replaces earlier synthetic securitisation treatment, requiring recalculation after each DLG invocation.
The rule, in the simplest words
How it plays out — a real example

Rahul, an NBFC compliance officer in Indore, is happy to know that his NBFC can now factor in the Default Loss Guarantee (DLG) when calculating ECL provisions for their digital lending portfolio. This means they can reduce provisioning requirements, improving capital efficiency. However, Rahul ensures that the DLG is embedded in the loan terms and follows Indian Accounting Standards (IndAS) disclosure norms.

What changed

RBI amended the NBFC Income Recognition, Asset Classification and Provisioning Directions to insert new paragraphs 36A, 36B, and 36C. These allow NBFCs to consider DLG arrangements when computing ECL provisions, provided the DLG is integral to the loan contract and not recognised separately. After each DLG invocation, NBFCs must recompute ECL provisions adjusting for the reduced cover.

What it means for you

NBFCs can now reduce provisioning requirements for portfolios with DLG, improving capital efficiency. However, they must ensure DLG is embedded in loan terms and follow IndAS disclosure norms. Post-invocation, provisions must be recalculated, preventing over-reliance on diminishing cover. This aligns prudential norms with digital and co-lending growth.

What you must do

Who it affects

NBFCs engaged in digital lending with DLG arrangements, NBFCs participating in co-lending with DLG cover, Risk and compliance teams at NBFCs, Auditors reviewing ECL provisioning under IndAS

❓ Common questions

Can NBFCs now treat DLG as a separate financial guarantee for provisioning?

No. The DLG must be integral to the loan's contractual terms and cannot be recognised separately under IndAS. It is factored into the ECL calculation as part of the loan portfolio.

What happens to provisioning after a DLG is invoked?

The DLG cover reduces by the invoked amount. NBFCs must recompute ECL provisions across all stages, adjusting for the reduced cover, to ensure adequate provisioning.

Does this amendment apply to all NBFCs or only those with digital lending?

It applies to all NBFCs with DLG arrangements permitted under the Credit Facilities Directions and Transfer and Distribution of Credit Risk Directions, covering digital lending and co-lending.

📜 Read the original circular — full text as issued by RBI
RBI/2025-26/210 DOR.STR.REC.413/21-07-001/2025-26 February 13, 2026 Reserve Bank of India (Non-Banking Financial Companies – Income Recognition, Asset Classification and Provisioning) Amendment Directions, 2026 Please refer to Reserve Bank of India (Non-Banking Financial Companies – Income Recognition, Asset Classification and Provisioning) Directions, 2025 (hereinafter referred to as ‘the Directions’). 2. Default Loss Guarantee (DLG) arrangements which are otherwise treated as ‘synthetic securitisation’ and are prohibited, were permitted in the limited case of digital lending vide circular dated June 08, 2023. Subsequently, the same was also permitted for co-lending arrangements vide Directions issued on August 06, 2025. 3. On a review, to ensure consistency in application of prudential principles, in exercise of the powers conferred by the Chapter III B of the Reserve Bank of India Act, 1934 and all other laws enabling the Reserve Bank in this regard, the Reserve Bank being satisfied that it is necessary and expedient in the public interest so to do, hereby issues the Amendment Directions hereinafter specified. 4. These Amendment Directions modify the Directions as under: New paras 36A, 36B and 36C shall be inserted as below: “C1. Provisioning for portfolios covered by Default Loss Guarantee (DLG) arrangements 36A. For loan portfolios covered by Default Loss Guarantee (DLG) arrangements in terms of Chapter III of the Reserve Bank of India (Non-Banking Financial Companies – Credit Facilities) Directions, 2025 and Part B of the Reserve Bank of India (Non-Banking Financial Companies – Transfer and Distribution of Credit Risk) Directions, 2025 both dated November 28, 2025, an NBFC may consider the DLG for determining provisions under the Expected Credit Loss framework across all stages, subject to the requirements as laid down under Indian Accounting Standards, which inter alia require the DLG arrangement to be integral to the contractual terms of the loan and the DLG not being recognised separately. 36B. An NBFC shall comply with the disclosure requirements as prescribed under IndAS 1. 36C. Since upon every event of invocation of DLG, the DLG cover reduces to the extent of invocation, an NBFC shall recompute their ECL provisioning requirements across stages, after duly adjusting for the reduced DLG cover.” 5. Consequential amendments have also been made vide Reserve Bank of India (Non-Banking Financial Companies – Credit Facilities) Amendment Directions, 2026 dated February 13, 2026 . 6. The above amendment shall come into force immediately. (Vaibhav Chaturvedi) Chief General Manager
Reproduced for reference with acknowledgment — Source: Reserve Bank of India · RBI/2025-26/210 · issued 13 Feb 2026. The plain-English explanation above is BankPulse’s own independent summary.
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Who does what — compliance checklist
💰 Credit
  • Update ECL provisioning models to incorporate DLG as a factor across all stages, ensuring no separate recognition.
📜 Compliance
  • Review all existing DLG arrangements to confirm they are integral to loan contracts per IndAS requirements.
  • Establish processes to recompute ECL provisions immediately after each DLG invocation event.
  • Enhance disclosure practices to comply with IndAS 1 requirements for DLG-related information.
Grouped from the action items above — a single circular may involve more than one team.
Worked example & action-note template

Example: if you are a Compliance officer at a bank this circular applies to (NBFCs engaged in digital lending with DLG arrangements, NBFCs participating in co-lending with DLG cover, Risk and compliance teams at NBFCs, Auditors reviewing ECL provisioning under IndAS), your first concrete step on “RBI Allows DLG in ECL Provisioning for NBFCs” is: “Review all existing DLG arrangements to confirm they are integral to loan contracts per IndAS requirements.” (RBI issued this 13 Feb 2026).

  1. Circular: RBI/2025-26/210 -- RBI Allows DLG in ECL Provisioning for NBFCs
  2. Issued: 13 Feb 2026
  3. Action required: Review all existing DLG arrangements to confirm they are integral to loan contracts per IndAS requirements.
  4. Action required: Update ECL provisioning models to incorporate DLG as a factor across all stages, ensuring no separate recognition.
  5. Action required: Establish processes to recompute ECL provisions immediately after each DLG invocation event.
  6. Action required: Enhance disclosure practices to comply with IndAS 1 requirements for DLG-related information.
  7. Owner: ____________ Target date: ____________
  8. Board/committee approval needed? Y / N
  9. Evidence filed in compliance register on: ____________
Built only from this circular’s own published fields — not legal advice; always confirm against the official RBI source.

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BankPulse Compliance Evidence Pack — generated 03 Aug 2026 · status cross-checked against RBI’s official withdrawal register (refreshed weekly).
Official RBI source: https://www.rbi.org.in/Scripts/NotificationUser.aspx?Id=13294&Mode=0 — Plain-English summary by BankPulse (bankpulse.ai), reviewed by our expert reviewer, CA Amit Jain. Independent platform, not affiliated with the Reserve Bank of India; is our own plain-English paraphrase, not RBI’s original wording.
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