Reserve Bank of India may curb first-loss default guarantees

Only regulated entities, rated arrangements can pass muster

The Reserve Bank of India (RBI) has sought details of first-loss default guarantee (FLDG) exposures of select banks and shadow banks, even as it has informally conveyed to them that it is not comfortable with the arrangements in vogue now.

An FLDG is a back-up offered by digital platforms (or, other unregulated entities) as guarantee to lenders (regulated) on whose behalf they source business.

The move to seek details on FLDG arrangements comes even as there is speculation in banking circles that the central bank is working on a master circular on outsourcing itself.

When read together, the stage appears to be set