RBI Draft Rules: NBFCs Face Revolving Credit Restrictions
By ThePip Desk
RBI proposes draft rules to restrict most NBFCs from offering revolving credit, limiting them to term loans. Understand the new credit framework and its implications.
The Reserve Bank of India (RBI) has proposed a significant restriction on most non-banking financial companies (NBFCs), aiming to limit them to offering only term loan products. This move, part of draft amendments to the Reserve Bank of India (Non-Banking Financial Company) Directions, 2025, excludes NBFCs specifically authorized to issue credit cards.
Understanding the New Credit Framework
The draft amendments introduce formal definitions for both “term loan” and “revolving credit” within the RBI Directions for the first time. This clarity is central to the proposed regulatory shift.
A term loan is defined as a fund-based credit facility where a fixed principal amount is sanctioned and disbursed, either in a lump sum or in instalments. Repayment occurs according to a predetermined schedule.
Crucially, once the principal amount of a term loan has been repaid, the sanctioned credit limit cannot be restored or replenished. This differentiates it fundamentally from revolving credit.
In contrast, revolving credit encompasses any fund-based credit facility that does not meet the definition of a term loan. These facilities typically allow borrowers to repeatedly draw down, repay, and reuse a sanctioned credit limit without needing a fresh loan application each time.
Implementing the Regulatory Shift
To implement this new framework, the RBI intends to delete an existing provision under Chapter II of the 2025 Directions. It will also remove the separate chapter that currently addresses Demand/Call Loans.
A new section titled “Restrictions on Revolving Credit Facilities” is proposed in their place. This section explicitly states that an NBFC “shall only offer credit products which are in the nature of term loans and shall not offer any revolving credit products.”
The sole exception to this restriction applies to NBFCs that have received specific authorization from the RBI to issue credit cards. These authorized entities will continue to offer revolving credit through their card-based products.
Immediate Impact and Future Outlook
If these amendments are officially notified in their current form, they are set to come into force with immediate effect. The RBI has opened the draft for public feedback, though a specific deadline for stakeholder submissions has not been announced.
This proposal aims to enhance clarity regarding the types of credit products NBFCs can provide, fostering a more uniform regulatory environment for non-bank lenders. Implementation could necessitate many NBFCs to redesign their current lending offerings to ensure compliance with the new term loan-only regime.