Module: General Practice
Q22: Consider the following statements regarding the Default Loss Guarantee (DLG) in Digital Lending:
Assertion (A): The RBI has capped the Default Loss Guarantee (DLG) cover on any outstanding digital lending portfolio at 5%.
Reason (R): The RBI intends to prevent "Synthetic Securitisation" and ensure that Regulated Entities retain the primary credit risk rather than offloading it entirely to unregulated Fintechs.
Reason (R): The RBI intends to prevent "Synthetic Securitisation" and ensure that Regulated Entities retain the primary credit risk rather than offloading it entirely to unregulated Fintechs.
✅ Correct Answer: A
🎯 Quick Answer:
Both statements are true, and the Reason correctly explains the Assertion.Structural Breakdown: The Rule (A): The RBI Circular explicitly caps DLG at 5% of the loan portfolio amount.
The Logic (R): Prior to this rule, Fintechs often offered 100% guarantees, effectively acting as lenders without a license.
This resembled "Synthetic Securitisation," which involves transferring risk without transferring the asset.
Causal Reasoning: By capping the guarantee at 5%, the RBI ensures the Regulated Entity keeps "skin in the game" for the remaining 95% of the risk.
This forces them to perform rigorous underwriting instead of relying blindly on the Fintech's guarantee.