Tata Capital Discusses Revolving Credit Ban with RBI

India’s third-largest non-banking financial company (NBFC), Tata Capital, is actively engaging with the Reserve Bank of India (RBI) regarding its recent proposal to ban revolving credit facilities. The RBI’s directive, issued on August 6, suggests restricting NBFCs solely to providing term loans.

Understanding Tata Capital’s Position

Rajiv Sabharwal, CEO of Tata Capital, confirmed the company’s intention to submit feedback to the regulator. While specific changes sought remain undisclosed, he clarified the company’s exposure to revolving credit is minimal.

• Tata Capital’s revolving credit exposure: below 5% of its overall loan book.
• This contradicts earlier estimates by brokerage IIFL, which had placed exposure in the high single to low double digits.

Sabharwal emphasized that Tata Capital would fully comply with the final regulations once they are officially issued. This proactive engagement underscores the sector’s response to evolving regulatory landscapes.

Broader Industry Implications and Regulatory Push

The RBI’s proposal has generated considerable concern among NBFCs that currently offer revolving or flexi-credit products. Brokerages have highlighted several potential negative implications for the industry’s operational dynamics.

• Potential negative implications include:
• Reduced customer acquisition.
• Slower business growth.
• Decreased customer loyalty.
• Lower lending yields.

Industry sources reveal the RBI has been encouraging non-bank lenders to move away from revolving credit for approximately two years. This has already prompted some institutions to discontinue such products even before the formal proposal.

Industry forums, including FIDC, the Self-Regulatory Organization for non-bank lenders, are now collecting feedback from various NBFCs. This collective effort aims to prepare a unified representation to the RBI, reflecting widespread industry sentiment.