The Reserve Bank of India issued amendments to its prudential directions for non-banking financial companies (NBFCs) on income recognition, asset classification and provisioning, setting out how portfolios covered by Default Loss Guarantee (DLG) arrangements should be treated under the Expected Credit Loss (ECL) framework. The changes permit NBFCs, subject to Indian Accounting Standards requirements, to factor eligible DLG cover into ECL provisioning across all stages and introduce related disclosure and recalculation obligations. For loan portfolios covered by DLG arrangements under Chapter III of the Reserve Bank of India (Non-Banking Financial Companies – Credit Facilities) Directions, 2025 and Part B of the Reserve Bank of India (Non-Banking Financial Companies – Transfer and Distribution of Credit Risk) Directions, 2025, NBFCs may consider the DLG when determining provisions under ECL, provided the DLG is integral to the contractual terms of the loan and is not recognised separately under IndAS. The amendments also require compliance with IndAS 1 disclosures and, because DLG cover reduces upon each invocation, mandate recomputation of ECL provisioning across stages after adjusting for the reduced DLG cover; consequential changes were also made via amendments to the NBFC Credit Facilities directions. The amendments apply immediately.
Reserve Bank of India 2026-02-13
Reserve Bank of India amends NBFC provisioning rules to allow Expected Credit Loss to reflect Default Loss Guarantee cover
The Reserve Bank of India amended prudential directions for non-banking financial companies (NBFCs) on income recognition, asset classification, and provisioning, allowing eligible Default Loss Guarantee (DLG) cover to be factored into Expected Credit Loss (ECL) provisioning, subject to Indian Accounting Standards. Effective immediately, the amendments include disclosure and recalculation obligations, requiring NBFCs to adjust ECL provisioning as DLG cover reduces upon invocation.