The First-Loss Default Guarantee is the risk-sharing mechanism at the heart of most co-lending arrangements: the NBFC guarantees to absorb the first X% of credit losses on the co-lending portfolio, protecting the bank's 80% share from all losses below the FLDG threshold. The FLDG is not a passive arrangement — it is a live financial position that changes every day as new accounts are added to the portfolio, existing accounts default, and the FLDG corpus is drawn on. The Co-Lending Ops Agent AI tracks the FLDG position for every active co-lending partnership in real time, monitors utilisation against the agreed cap, and alerts when the position is approaching the contractual trigger for additional corpus deposit.
How the FLDG works — and the three positions the NBFC must monitor simultaneously
Under RBI's CLM-2020 circular and subsequent guidelines, co-lending arrangements may include a First-Loss Default Guarantee provided by the NBFC to the bank. The NBFC deposits an FLDG corpus — typically 5 to 15% of the outstanding co-lending portfolio — into a designated escrow account. When a co-lending account becomes NPA and the bank's 80% share incurs a credit loss, the FLDG corpus is drawn on to reimburse the bank. The FLDG arrangement specifies: the FLDG percentage (the ratio of FLDG corpus to portfolio outstanding), the trigger for additional deposit (when actual defaults approach a specified percentage of the corpus), and the conditions under which the FLDG corpus is released back to the NBFC (when the portfolio winds down or when the default rate falls below the release threshold for a sustained period).
The three FLDG positions the NBFC must monitor simultaneously are: the corpus position (how much of the FLDG corpus has been drawn vs how much remains), the utilisation rate (actual defaults as a percentage of the maximum FLDG commitment), and the trigger proximity (how close actual defaults are to the contractual trigger for additional corpus deposit or for the bank to terminate the arrangement). Each of these changes every day as new defaults emerge and as existing NPAs are resolved or written off.
The FLDG tracker: all active partnerships
The FLDG trigger events and what the Co-Lending AI does when each fires
| Trigger Event | Threshold | Immediate Action | NBFC Options |
|---|---|---|---|
| Approaching trigger — watch | FLDG utilisation within 10pp of contractual trigger | Weekly monitoring escalated to daily · CFO and co-lending ops lead notified · NPA trend analysis prepared | Monitor · Optionally pre-position additional corpus · Review new origination pace |
| Trigger threshold crossed | FLDG utilisation ≥ contractual trigger % | CFO and MD alerted immediately · Bank notified per agreement terms · Additional deposit obligation assessed | Deposit additional corpus within contractual period (typically 10–15 business days) · Or pause new origination under the arrangement |
| Corpus exhaustion — approaching zero | FLDG remaining <10% of original corpus | Board alert · Bank has right to terminate arrangement per most agreement terms · All new origination paused immediately | Negotiate corpus replenishment with board approval · Or orderly wind-down of the co-lending arrangement |
| Corpus release condition met | Portfolio NPA rate below release threshold for sustained period (typically 6 months) | Co-Lending AI prepares release calculation — how much corpus can be released and what must remain to cover current NPAs | Request corpus release from bank · Partial or full release per agreement terms · Improves NBFC's capital efficiency |
| Portfolio wind-down | Co-lending arrangement ends · Portfolio fully amortised or sold | Final FLDG reconciliation prepared · All outstanding NPA exposures settled · Corpus release to NBFC | Close the escrow · Return remaining corpus · File final regulatory report |
The FLDG corpus that is exhausted without warning is the NBFC's worst-case co-lending scenario — and it is entirely preventable
An NBFC that discovers its FLDG corpus is exhausted on the day the bank calls to invoke the guarantee has no good options — it must either fund the guarantee from its own capital immediately or face a contractual default with its banking partner. The situation is entirely avoidable if the FLDG position is tracked daily and the deteriorating NPA trend that will exhaust the corpus is visible weeks before the crisis. The Co-Lending Ops Agent AI's FLDG tracker gives the NBFC exactly that visibility — the UCO Bank position reached critical status today, with the trigger 3.9 percentage points away. The NBFC's CFO is making the decision to deposit additional corpus or pause origination with 3 to 4 weeks of runway, not on the day the trigger fires.