NBFCs Ask RBI to Rethink Revolving Credit Ban

Indian non-banking finance companies (NBFCs) are urging the Reserve Bank of India (RBI) to reassess its proposed ban on revolving credit products. This move, outlined in draft amendments from August 6, 2026, would mandate a shift to rigid term loans.

Understanding the RBI’s Proposal

The RBI’s draft aims to prohibit existing revolving credit facilities. This regulatory change would require lenders to convert these flexible credit lines into traditional term loans, each with a fixed amount and a predefined repayment schedule.

• Draft Amendments Issued: August 6, 2026
• NBFCs Convened: August 14, 2026 (Bajaj Finance, Tata Capital, Shriram Finance)
• Feedback Deadline: August 28, 2026

The Mechanics of Revolving Credit and its Value

Revolving credit products, encompassing digital credit lines and flexi-loans, provide essential flexibility for various borrowers. They are particularly vital for Micro, Small, and Medium Enterprises (MSMEs) and individuals requiring quick access to short-term liquidity or working capital.

• Offers crucial flexibility for managing cash flow.
• Supports short-term liquidity and working capital needs.
• Simplifies access to funds without repeated applications.

Industry Concerns Over the Transition

NBFCs estimate this mandatory transition could disrupt over Rs 2 lakh crore in assets under management (AUM). They argue that replacing revolving credit with term loans introduces several operational and cost burdens.

• Repeated credit appraisals for each new loan.
• Extensive documentation requirements for every disbursement.
• Complex and time-consuming disbursement processes.
• Potential for higher operational costs for lenders.
• Likelihood of increased interest rates or processing fees for borrowers.

Competitive Landscape and Market Reaction

The industry also fears a significant competitive disadvantage if the ban is implemented. Banks would retain the ability to offer similar working-capital products, potentially undermining the goal of a level playing field across financial institutions.

Following the draft guidelines’ release, market sentiment towards NBFC stocks turned negative. Major lenders experienced notable price declines, reflecting investor apprehension about the proposed regulatory changes.

Path Forward and Industry Dialogue

While the RBI had previously raised concerns, NBFCs assert they have already implemented necessary modifications to their offerings. They contend that a complete prohibition is not the most appropriate regulatory solution.

The Finance Industry Development Council is coordinating a formal response, advocating for direct dialogue with regulators. The industry proposes alternatives like targeted supervision instead of a blanket ban.

The finalization of these guidelines will be a critical determinant for investors. It will significantly influence how NBFCs must redesign their product portfolios and the subsequent impact on their profitability and credit growth.