ET NEWS

Mumbai: In a move that could support stronger credit expansion, the Reserve Bank of India (RBI) has restored the use of default loss guarantees (DLGs) for non-bank lenders, rolling back last year's curbs that had forced them to make higher provisions on loans sourced through fintech partners.Non-banking finance companies (NBFC) can now factor in DLGs when setting aside buffers for potential loan losses, provided the guarantee forms an integral part of the loan arrangement, the RBI said last week. The regulator also said lenders must update their loss estimates each time the guarantee is invoked, as the protection available reduces with every use.For NBFCs, this change reduces provisioning pressure, improves profitability, and frees up balance-sheet capacity for fresh lending. For fintechs, meanwhile, it would encourage greater loan origination. The revised framework takes effect immediately.128394142 "This is a significant relief for NBFCs like us that are engaged in digital lending partnerships with Fintech Lending Service Providers (LSPs)," said Ravi Narayanan, MD & CEO, SMFG India Credit. "This regulatory clarity will support the industry in safely scaling digital lending, enabling NBFC-fintech partnerships to expand access to under-penetrated retail customer segments," he added.The move marks a reversal from the central bank's May 2025 directive. Back then, the regulator had instructed NBFCs to exclude DLGs offered by fintech lending service providers when calculating the loss buffers required for stressed or risky loans. The earlier stance, mandatory from March 31, 2025, had led lenders to build full provisions on these portfolios, raising credit costs and dampening the appeal of fintech-originated loans.The Provisioning PoserThe earlier rules had forced several NBFCs to take sizable additional provisions in the March quarter, ET had reported on May 27 last year. SMFG India Credit reported a 44% fall in FY25 profit after booking Rs 115 crore in extra DLG-related buffers, while Credit Saison India's profit dropped 22% following ₹178 crore in additional provisioning.Northern Arc Capital also reported an impact of ₹80 crore and had provided ₹63 crore on its books as of March 31, 2025. The RBI had mandated NBFCs to make provisions across the March, June and September quarters of 2025."This amendment shall result in reversal of additional provisions carried thus far by the entities and free up the capital. This will be favourable for lending partners in such loan arrangements and support overall credit expansion. It is also timely considering that the revised co-lending guidelines are effective from January this year," said AM Karthik, co-group head, financial services, Icra Ratings.DLGs - usually capped at 5% and often backed by fixed deposits provided by digital lending partners - had been widely used in digital lending and co-lending structures. The 2025 rules had effectively neutralised their benefit, leading to a pullback in origination volumes for fintechs and higher credit costs for NBFCs.With the latest amendment, the RBI aims to harmonise the treatment of DLGs across digital lending, co-lending and credit-risk transfer guidelines, while ensuring lenders do not overstate the protection offered by such guarantees.

New Delhi: The benefits of a decade of defence reforms were evident during Operation Sindoor, Prime Minister Narendra Modi said on Sunday, asserting that India has to be prepared at all times to deal with security challenges.As a country that is playing an increasingly important role in the world, India has a duty to modernise its defence sector in line with current realities, Modi said in an exclusive interview to PTI.Citing the allocation of Rs 7.85 lakh crore to the defence sector in the Union Budget 2026-27, the prime minister said the outlay is 15 per cent higher than the previous budget and is also the "biggest chunk" given to any ministry or department.Since day one, the government has been clear -- it will do whatever it takes to support the country's defence forces and strengthen them, he said.Modi said the Indian armed forces must be equipped with the best of Indian innovation and industry as technology is reshaping the world and that the NDA government has been working on modernisation and self-reliance in this sector for the last 11 years.On Operation Sindoor, the prime minister said the entire country is proud of the courage shown by the armed forces."During the operation, one could see the benefits of the reforms we have undertaken in the last decade. Therefore, defence budgets, modernisation, etc., all these are parts of our continuous effort and need not be linked to any particular issue," he said in the written interview.The prime minister was asked if the higher budgetary allocation to the defence sector was part of the lessons learnt from Operation Sindoor and does it also signal a continued mistrust of India's neighbours, including Pakistan."Yes, the reality is that our country has to be strong and be prepared at all times, and that is what we are doing," he said.Modi said the modernisation of the armed forces has been a priority of his government."In this year's budget, a record Rs 7.85 lakh crore have been allocated to the defence sector. This is 15 per cent higher than the previous budget and is also the biggest chunk allotted to any ministry or department," he said."If you look at the details, too, there are noteworthy aspects. For modernisation, Rs 1.85 lakh crore have been allotted, which is 25 per cent above last year's allocation," he said.Modi said the capital expenditure allotment for the three forces is almost Rs 2.2 lakh crore, of which 75 per cent is reserved for procurement from domestic defence industries."This not only enhances security but also creates jobs and strengthens our industrial base. The results are already visible -- defence exports have crossed Rs 23,000 crore, a nearly 35-fold rise in the past decade, and indigenous defence production has touched record levels," he said.The prime minister said the government has been "very sensitive" to the well-being of the ex-servicemen."Hence, the allotment for the healthcare scheme exceeds Rs 12,000 crore. In percentage terms, it is a 45-per cent rise. But there is something more that I wish to place on record...," he said."Since day one, our government has been clear -- we will do whatever it takes to support our defence forces and strengthen them. Yes, this year's allocation is a record high, but viewing it in isolation only provides a limited perspective," Modi said.The prime minister noted that it was the NDA government that fulfilled the four-decade-long demand for OROP (One-Rank-One-Pension)."It is one of our biggest tragedies that those who ruled the country for decades used the defence sector only to enrich their own pockets, as evidenced by the number of defence-related scams during their tenure," he said in an indirect criticism of the previous Congress governments.Modi also highlighted his government's push for defence modernisation."We have been working on modernisation and self-reliance in this sector for the last 11 years. See the number of startups working in this sector now," he said."We believe in giving Indian talent the opportunity to support our forces and contribute to a stronger India," he added.