What is FLDG (Default Loss Guarantee)?

Short answer

FLDG (First Loss Default Guarantee) is an arrangement where a fintech or lending partner promises to absorb a lender's losses on a loan portfolio up to a set amount. RBI formalised it in June 2023 as Default Loss Guarantee (DLG). The guarantee must be contractually defined, can't exceed 5% of the portfolio, and must be backed by cash, a fixed deposit or a bank guarantee.

Hindi mein samjhiye

FLDG (ab DLG) mein fintech partner bank ya NBFC ko guarantee deta hai ki loan default hone par nuksaan ka ek hissa woh bharega. RBI ne 2023 mein iske niyam banaye: guarantee portfolio ke 5% se zyada nahi ho sakti.

Why it exists

Fintechs that source borrowers want lenders to trust their underwriting. Putting their own money at risk through a DLG aligns incentives. Before 2023 these arrangements were unregulated and sometimes hid who really carried the credit risk. RBI's DLG guidelines set out what is allowed.

Key rules (RBI, June 2023)

Only regulated entities can accept DLG, from eligible DLG providers such as LSPs or other REs.
The total DLG cover is capped at 5% of the loan portfolio.
It must be in the form of cash, a fixed deposit with lien, or a bank guarantee.
The lender must invoke it within a set time after default, and still does its own underwriting and asset classification.

What it means for operations

Lenders need portfolio-level tracking of the DLG pool, invocation rules and disclosure. The loan book still follows the normal NPA rules regardless of the guarantee.

Common questions

What is FLDG in NBFC lending?

First Loss Default Guarantee: a partner's promise to cover a lender's losses on a portfolio up to a set limit. RBI now calls it Default Loss Guarantee (DLG).

What is the DLG cap?

5% of the loan portfolio covered, under RBI's June 2023 guidelines.

What is the difference between FLDG and DLG?

Same concept. DLG is the term in RBI's 2023 guidelines, which formalised and capped FLDG arrangements.

Co-lendingCo-lending is when two regulated lenders, usually a bank and an NBFC, jointly fund each loan in a pre-agreed ratio under one agreement.Key Fact Statement (KFS)A Key Fact Statement (KFS) is a standard, plain-language summary of a loan that the lender must give the borrower before signing.SMA-0, SMA-1, SMA-2 & NPARBI asks lenders to flag early stress in loans as Special Mention Accounts (SMA) before they turn bad.

ZyroAI products for this: Loan Management System.

Written by the ZyroAI team for people building in Indian BFSI. Regulatory rules change, so for binding requirements check the current RBI, NPCI, UIDAI or relevant regulator circular. Last updated 2026-09-24.

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