NBFC operator glossary
Plain-English definitions for the regulatory and operating terms that come up in Indian lending. Aimed at NBFC, MFI, and co-operative operators who want a quick, accurate read.
RBI Digital Lending Guidelines
The Reserve Bank of India’s framework for digital lending, issued in September 2022 with subsequent updates. Covers disclosures to borrowers, the LSP / DSA disclosure regime, direct disbursement requirements, fair-practice obligations, and grievance redressal.
FLDG — First Loss Default Guarantee
A contractual arrangement where the LSP or partner provides a first-loss cover on a portfolio of loans. Capped at 5 per cent of the portfolio under the RBI framework. Used in NBFC-LSP partnerships to align incentives.
DLG — Default Loss Guarantee
The successor framework to FLDG under the updated RBI Digital Lending Guidelines. Specifies the conditions under which a regulated entity (NBFC or bank) can accept a default loss guarantee from an LSP, including caps, accounting treatment, and disclosure.
PA-PG — Payment Aggregator and Payment Gateway
The RBI’s regulatory framework for payment aggregators and gateways, issued in 2020 and updated since. PAs hold customer funds in escrow and require a separate licence; PGs are pure infrastructure providers.
BC — Business Correspondent
An entity that provides banking services on behalf of a bank in locations where the bank does not have a branch. Operates under the RBI’s BC framework. Used by banks and NBFCs to extend reach into underserved areas.
LSP — Lending Service Provider
A non-regulated entity that performs one or more functions in the lending value chain (sourcing, customer interaction, collections) on behalf of a regulated lender. Disclosure to the borrower is required under the RBI Digital Lending Guidelines.
DSA — Direct Selling Agent
An agent that sources loans for a lender. Empanelled by the lender. Compensated on origination or disbursement. Operates under each lender’s DSA framework, which references the IBA guidelines.
NBFC — Non-Banking Financial Company
A financial institution registered with the RBI under the NBFC framework. Permitted to lend, but not to accept demand deposits. Indian NBFCs are categorised under the scale-based regulation framework into Base, Middle, Upper, and Top Layers.
NBFC-MFI — Microfinance NBFC
A specialised NBFC category for microfinance institutions. Subject to qualifying asset ratio rules, household indebtedness caps, and income-bracket disclosure requirements under the RBI’s regulatory framework for NBFC-MFIs.
Section 8 lending company
A company incorporated under Section 8 of the Companies Act 2013 (a “not-for-profit” company) that engages in lending. Subject to the Companies Act’s restrictions on profit distribution and the regulatory framework applicable to its specific activity.
SRO — Self-Regulatory Organisation
In the Indian fintech context, FACE (Fintech Association for Consumer Empowerment) is the SRO recognised by the RBI for digital lending. Members commit to a code of conduct that maps to the RBI’s regulatory expectations.
SBR — Scale-Based Regulation
The Reserve Bank of India’s regulatory framework for NBFCs, classifying them into Base Layer, Middle Layer, Upper Layer, and Top Layer based on size and activity. Disclosure and supervisory return requirements scale accordingly.
Co-lending
A partnership where two regulated entities (typically a bank and an NBFC, or two NBFCs) jointly lend to a borrower, sharing the risk and the returns according to a pre-agreed ratio. Subject to specific RBI guidelines on co-lending arrangements.
Bucket 1, 2, 3 (collections)
Standard NBFC and MFI terminology for overdue accounts. Bucket 1 is 1 to 30 days past due. Bucket 2 is 31 to 60. Bucket 3 is 61 to 90. Beyond that, accounts move into NPA classification (Stage 2 / Stage 3 under Ind-AS).
NPA — Non-Performing Asset
A loan account that has been overdue for 90 days or more. Under Ind-AS, classified as Stage 3 for ECL provisioning. Specific RBI rules apply to NPA recognition, provisioning, and reporting for NBFCs.
Qualifying asset ratio
For NBFC-MFIs, the regulatory requirement that 75 per cent of total assets must be qualifying assets (microfinance loans meeting specific criteria). Falling below this triggers regulatory consequences.
Cooling-off period
The period during which a borrower can withdraw from a digital lending agreement without penalty. Mandated under the RBI Digital Lending Guidelines.
Key Fact Statement
A standardised disclosure document required under the RBI Digital Lending Guidelines, summarising the terms, costs, and conditions of a loan in a format the borrower can understand. Must be acknowledged by the borrower before disbursement.
CKYC — Central KYC
The centralised KYC registry maintained under the Companies Act framework. Customers KYC’d once can be verified against CKYC for subsequent relationships, reducing onboarding friction.
ECL — Expected Credit Loss
Under Ind-AS 109, the framework for provisioning loan losses. Replaces the older incurred-loss model. Requires forward-looking estimates of credit losses, segmented into Stage 1 (12-month ECL), Stage 2 (lifetime ECL), and Stage 3 (NPA, lifetime ECL).