Now Reading: RBI proposes ban on NBFC revolving credit products
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RBI proposes ban on NBFC revolving credit products
The Reserve Bank of India has proposed an amendment that would force NBFCs to offer only term loans, effectively banning revolving credit products such as flexi loans and overdraft facilities. The draft…
The Reserve Bank of India has proposed an amendment that would force NBFCs to offer only term loans, effectively banning revolving credit products such as flexi loans and overdraft facilities. The draft notification, released without an explanatory rationale, has alarmed industry bodies and NBFCs, who argue revolving credit is vital for MSMEs, self-employed individuals, and salaried workers who use it to manage cash flow and pay interest only on drawn amounts.
Under the proposed rule, a borrower sanctioned Rs 1 lakh would receive the full amount upfront with fixed repayment terms, rather than being able to draw and repay flexibly. Industry bodies fear this will force lenders to restructure systems and lose customers who prefer flexible borrowing. The RBI has invited stakeholder comments until August 28, 2026, leaving room for modification or withdrawal of the proposal before final notification.
Indian Opinion Analysis
The RBI's draft amendment targets a long-standing grey area where revolving credit products allowed NBFCs to keep non-performing assets (NPAs) off their books by letting borrowers draw fresh funds to service old debt. This practice, known as evergreen lending, has been flagged in several central bank financial stability reports as a systemic risk, particularly as household debt-to-GDP has climbed past 40% for the first time. The draft notification gives stakeholders until August 2026 to respond, a long window that suggests the RBI expects pushback from the NBFC sector, which earns high margins on these products. MSMEs, which rely on revolving credit for working capital, will be the most affected group, around 6.3 crore such enterprises operate in India, many with informal credit histories. The key date to watch is August 28, 2026, when public comments close.
Source: bfsi.economictimes.indiatimes.com
This story was synthesised by AI from the source linked above.
