RBI plans to bar NBFCs from offering revolving credit without approval

Kolkata: The Reserve Bank of India told non-banking financial companies (NBFCs) not to offer revolving credit facilities such as credit cards in a draft circular issued on Thursday. NBFCs will only be allowed to offer term loans.

This restriction, however, will not apply to NBFCs already authorised to issue credit cards, the central bank said.

This means SBI Cards & Payment Services, the State Bank of India-promoted NBFC dedicated specifically to selling credit cards, may be out of the purview of the restriction. Standalone NBFCs require explicit prior regulatory approval and a minimum net-owned fund of Rs 100 crore to issue credit cards independently. Some NBFCs offer co-branded credit cards in partnership with banks.


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"NBFCs shall only offer credit products which are in the nature of term loans and shall not offer any revolving credit products. Provided that the aforesaid restriction shall not be applicable to an NBFC authorised by the Reserve Bank to issue credit cards," the central bank said in the circular, inviting comments from stakeholders.

The amendment will come into force immediately after the final guidelines are issued.

While the central bank encourages innovation in financial systems and credit products and is overall in favour of deregulation, it brings in such prudential norms as safeguards.

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Revolving credit is any fund-based credit facility wherein lenders set a credit limit and customers can borrow money, pay it back and borrow again within the limit. Bank overdraft accounts and business working capital lines are examples, besides credit cards.

A term loan, on the other hand, refers to a fund-based credit facility of a fixed principal amount, disbursed in one or more instalments and repayable either as periodic instalments or as a bullet payment on the stated due date. Once disbursed, the sanctioned limit of a term loan cannot be restored or replenished upon repayment of either the whole or a part of the principal amount.