A recent decision by the Reserve Bank of India (RBI) could provide a much-needed spark for electric two- and three-wheeler financing in the country. On February 16, RBI restored the recognition of Default Loss Guarantees (DLGs) for non-banking finance companies (NBFCs), reversing a restriction it introduced in 2025. The move will reduce NBFCs’ financial burden, im-prove their collaboration with financial technology (fintech) companies and increase money flow in the credit sector.
DLG is essentially a risk-sharing arrangement between an NBFC and a fintech or digital lender. Examples of such partnerships include KreditBee-KrazyBee NBFC, Fibe-InCred and PayU-IDFC First Bank. Under these collaborations, the fintech sources borrowers to whom the NBFC can offer loans. In return, the fintech makes a contractual promise to absorb a small portion of losses if a borrower defaults on repayment; this is capped at 5 per cent of the loan portfolio.
This limited safety net is crucial given that most borrowers under DLG have thin credit histories or modest scores. Traditional underwriting can struggle to capture their actual earning capacity. This is particularly true for gig workers, delivery riders, small fleet operators or entrepreneurs, who are also the usual buyers of electric two- and three-wheelers.
Thus, a DLG arrangement makes lending to underserved segments commercially viable and has for years enabled credit to flow into last-mile mobility.
In June 2023, RBI directed NBFCs to cap DLG cover to 5 per cent of the total amount of its loan portfolio. Then in May 2025, it told them to exclude DLGs while calculating provisions for stressed assets (setting aside money to cover potential loan losses). So, even if a fintech provided a DLG backed by a fixed deposit or bank guarantee, the NBFC would have to provision as though the guarantee did not exist.
These restrictions may be seen as a way to reduce risks associated with the way DLGs were deployed historically. Many NBFCs used DLGs to bypass stricter capital provisioning norms. They did not have to show these risks in their…
This article was originally published in the March 16-31, 2026 print edition of Down To Earth