NBFCs seek RBI rethink on revolving credit curb

MUMBAI: India's largest non-banking finance companies (NBFCs), including Bajaj Finance, Tata Capital and Shriram Finance, are seeking a meeting with the Reserve Bank of India (RBI) to urge the banking regulator to reconsider its proposed blanket prohibition on revolving credit products, said people familiar with the development.

Senior representatives of some of the country's largest NBFCs met on August 14 to discuss the issues they intend to raise with the RBI. The lenders will make a formal representation through the Finance Industry Development Council, the industry body representing NBFCs, this week, according to the people.

The NBFCs plan to impress upon the regulator that the proposed restriction could disrupt credit products worth more than Rs 2 lakh crore and constrain access to finance for micro, small and medium enterprises (MSMEs) and individuals.


The industry will press for a meeting between RBI officials and a representative cross-section of NBFCs to discuss the amendment's potential impact on credit growth, borrower access, competition and the broader non-bank lending sector, said the people, who did not wish to be identified.

"The draft amendment, as presently framed, does not set out the regulatory rationale or any specific supervisory concern sought to be addressed through the complete prohibition of such products," the chief executive of an NBFC told ET. "Given the breadth of the proposed definition, the blanket prohibition will impact established credit products offered by NBFCs with an aggregate AUM (assets under management) of more than Rs 2 lakh crore."

The market for such products is growing at 15-20% annually and is expected to nearly double over the next four years, the executive said. Nearly 90% of this lending caters to MSMEs and individuals, while the products have neither displayed adverse credit behaviour nor resulted in unusually high credit costs, the person added.

The regulator issued the draft RBI (NBFC-Credit Facilities) Amendment Directions, 2026, on August 6. The draft proposes that NBFCs be permitted to offer only term loans and not revolving credit products.

ET has learnt that the RBI's supervisory department raised concerns over revolving credit products offered by NBFCs during the past two inspection cycles. Following extensive consultations with the regulator, lenders modified their products and processes. NBFCs, say they have not received any adverse supervisory feedback on these products since the changes were made, making the rationale for a complete prohibition unclear.

The industry contends that the proposal would create regulatory arbitrage in favour of banks, which continue to offer similar working-capital and short-term liquidity facilities. This would grant a competitive advantage to banks and run counter to the broader regulatory objective of competitive neutrality and a level playing field between banks and NBFCs, the people said.

"Forcing lenders to replace such facilities with repeated term loans would increase credit appraisals, documentation, disclosures, disbursement and servicing requirements," said another official involved in the discussions. "The additional operational costs could ultimately be passed on to borrowers through higher interest rates and charges."