RBI norms on guarantee may hit unsecured loans: Crisil

The RBI’s norms on first loss default guarantee (FLDG) cover are likely to curb lending volumes in unsecured personal and business loans, according to rating agency Crisil. FLDG is a guarantee extended to lenders by corporate entities for loans.

Availability of FLDG cover has enabled fintechs scale up digital lending as it emboldened traditional lenders like banks and non-banking finance companies to take on their books unsecured loans extended without human intervention using analytics.

The RBI limited the FLDG to 5% of the loan portfolio and disallowed corporate guarantees as a form of FLDG.