The Reserve Bank of India has issued the Reserve Bank of India (Non-Banking Financial Companies – Income Recognition, Asset Classification and Provisioning) Amendment Directions, 2026 to streamline provisioning norms for loan portfolios covered by Default Loss Guarantee (DLG) arrangements.
Under the Reserve Bank of India (Non-Banking Financial Companies – Income Recognition, Asset Classification and Provisioning) Directions, 2025, NBFCs followed Expected Credit Loss (ECL) provisioning in accordance with Indian Accounting Standards (IndAS). While DLG arrangements were selectively permitted in digital lending (circular dated June 08, 2023) and later extended to co-lending arrangements (August 06, 2025), there was no explicit clarity in the IRACP Directions on how DLG should be factored into ECL provisioning calculations. This created interpretational gaps in provisioning treatment for portfolios covered by DLG.
The Amendment Directions insert new paragraphs 36A, 36B and 36C under the Directions
NBFCs may consider DLG for determining provisions under the ECL framework across all stages, provided the arrangement complies with Indian Accounting Standards and is integral to the contractual terms of the loan, without separate recognition.
Mandatory compliance with disclosure requirements under IndAS 1 has been prescribed.
NBFCs are required to recompute ECL provisioning upon every invocation of DLG, adjusting for the reduced DLG cover.
Consequential amendments have also been made to the Credit Facilities Directions, and the amendment is effective immediately.Link – https://www.rbi.org.in/Scripts/NotificationUser.aspx?Id=13294&Mode=0
