🧠 Food for thought

Implications, context, and why it matters.

The 5% cap that shapes Moneyview’s DLG model

• Moneyview plans to use IPO proceeds to fund its Default Loss Guarantee (DLG) arrangements, a setup that follows Reserve Bank of India rules.
• RBI rules let a DLG provider cover only up to 5% of a specified loan portfolio for a regulated entity such as a bank or non-banking financial company (NBFC) 1.
• Earlier, some fintech lenders offered near-100% guarantees, which the RBI treated as a systemic risk 2.
• The guarantee must sit on permitted backing such as cash deposits, fixed deposits with lien marked in favour of the regulated entity, or bank guarantees, so it ties up real money 3.
• The DLG attaches to a fixed or frozen loan pool. Once invoked or exhausted, it cannot return even if recoveries later come in on those bad loans 4.

The DLG cap leaves most credit risk with lenders, not fintech lenders

• With a 5% ceiling, the bank or NBFC keeps most of the credit risk tied to the loans.
• RBI guidance says DLG does not replace strong credit underwriting standards, so the regulated bank or NBFC still needs its own credit checks 5.
• When regulated entities themselves provide DLG, RBI FAQs say they must subtract the full outstanding DLG amount from their capital 4.
• Overall, banks and NBFCs must carry credit risk on their own balance sheets even when DLG arrangements exist.