India, May 1 -- As part of a new set of guidelines for digital lending, the Reserve Bank of India has stated that peer-to-peer (P2P) lending platforms cannot enter into default loss guarantee or DLG agreements with NBFCs.

Default loss guarantees are baked into agreements between RBI-regulated entities such as banks and NBFCs and lending platforms. The DLG is a risk protection mechanism, where the platform gives a token guarantee of covering the defaults for any funds sourced from lenders and deployed. This is typically seen in personal and business loan segments.

Typically, lending platforms offer 5% of the total defaults as a DLG to lenders based on this RBI mandate. The DLG has been put in place to ensure that lending platforms do not...