NBFCs Urge RBI to Rethink Revolving Credit Ban: Rs 2 Lakh Cr Impact
By Business Desk
Leading NBFCs, including Bajaj Finance, request RBI to reconsider the revolving credit ban, warning of a Rs 2 lakh crore disruption to MSME and individual lending.
India’s largest Non-Banking Finance Companies are urging the Reserve Bank of India (RBI) to reconsider its proposed blanket ban on revolving credit products. This move comes as the industry anticipates a significant disruption to credit access for micro, small, and medium enterprises (MSMEs) and individuals.
Senior representatives from major NBFCs, including Bajaj Finance, Tata Capital, and Shriram Finance, convened on August 14. They discussed the core issues to present to the RBI, with a formal representation expected this week via the Finance Industry Development Council (FIDC).
- Disrupted Credit Value: Over Rs 2 lakh crore
- Annual Market Growth: 15-20%
- Projected Market Doubling: Within the next four years
- MSME & Individual Lending Share: Approximately 90%
The RBI issued the draft RBI (NBFC-Credit Facilities) Amendment Directions, 2026, on August 6. These directions specifically propose that NBFCs should exclusively offer term loans, thereby prohibiting revolving credit products.
The Mechanism of Revolving Credit and RBI’s Proposal
Revolving credit allows borrowers to draw, repay, and redraw funds up to a certain limit, offering flexibility. The RBI’s draft aims to restrict NBFCs to only providing term loans, which are fixed-period loans with structured repayment schedules.
While the RBI’s supervisory department had previously raised concerns, NBFCs assert they modified their products and processes, receiving no adverse feedback since. The industry argues a complete prohibition lacks clear regulatory rationale.
Economic and Regulatory Implications
NBFCs contend that such a ban would create regulatory arbitrage, granting banks a competitive advantage as they continue to offer similar working-capital and short-term liquidity facilities. This outcome would contradict the principle of competitive neutrality.
- Increased Operational Costs: Forcing a switch to repeated term loans would escalate expenses for credit appraisals, documentation, and servicing.
- Higher Borrower Rates: These increased operational costs could ultimately be passed on to borrowers through elevated interest rates.
The industry’s push for reconsideration highlights significant concerns over market disruption, access to finance for critical sectors, and the broader regulatory landscape for non-banking financial entities in India.