RBI’s Big NBFC Lending Shake-Up; Why Most Non-Banks May Soon Lose Revolving Credit

The Reserve Bank of India (RBI) has proposed preventing most non-banking financial companies (NBFCs) from offering revolving credit facilities, a move that could reshape the lending products available through the non-bank finance sector.

The proposal is part of draft amendments to the RBI (Non-Banking Financial Company) Directions, 2025, which have been released for public feedback.

Under the proposed framework, NBFCs would generally be restricted to offering term loans and would not be permitted to provide revolving credit facilities. NBFCs specifically authorised by the RBI to issue credit cards would be exempt from the restriction.

Term Loans Vs Revolving Credit

The draft introduces formal definitions of "term loan" and "revolving credit" under the RBI's NBFC framework.

A term loan is defined as a fund-based facility under which a fixed amount is sanctioned and disbursed either upfront or in instalments. The borrower then repays the amount according to a predetermined schedule.

Once the principal has been repaid, however, the borrower cannot restore or reuse the original sanctioned limit.

Revolving credit works differently. Under the RBI's proposed definition, it covers any fund-based credit facility that does not qualify as a term loan.

Such products generally allow borrowers to draw funds, repay them and access the available credit again without having to apply for a fresh loan.

RBI Proposes New Restrictions

To introduce the new framework, the RBI has proposed deleting an existing provision in Chapter II of the 2025 Directions and removing the separate chapter governing Demand/Call Loans.

The central bank instead plans to introduce a dedicated section titled "Restrictions on Revolving Credit Facilities."

The proposed provision states that an NBFC would only be allowed to offer credit products that qualify as term loans and would be prohibited from offering revolving credit products.

The exception would cover NBFCs that have received specific RBI authorisation to issue credit cards. Such lenders would continue to be able to offer revolving credit through their card businesses.

Immediate Impact If Notified

If the amendments are finalised in their current form, they would take effect immediately after notification.

The RBI has invited stakeholders to submit comments before the proposals are finalised. The draft notification, however, does not specify a deadline for submissions.

The proposed changes are intended to provide greater clarity over the types of credit facilities NBFCs can offer and establish a more consistent regulatory framework for non-bank lenders.

If implemented, the restrictions could require several NBFCs to rework existing lending products, particularly facilities that allow customers to repeatedly draw and repay credit within a sanctioned limit.

The move could therefore have a significant impact on how NBFCs structure and distribute credit outside the traditional banking system.