On Thursday, the Reserve Bank of India issued draft amendment directions on credit facilities for non-bank lenders (NBFCs). The draft amendment direction proposes a ban on revolving credit facilities by these NBFCs.
According to the draft directions, the NBFCs can only offer term loan products under draft norms. The RBI has also defined term loans and revolving credit in the draft amendment.
A term loan is defined as one with a predetermined repayment schedule and a non-replenishing sanctioned limit, with only RBI-authorized credit card issuers exempt. Bullet repayment structures remain permissible.
The draft amendment has exempted credit cards issuing NBFCs from the proposed revolving credit ban. These norms propose to take effect immediately once notified. Comments on the same have been invited by the central bank until August 28, 2026.
RBI has also sought to remove existing provisions on demand and call loans under the NBFC directions.
According to brokerage firm Bernstein, the proposal is an industry-wide measure affecting NBFCs with significant flexi-loan portfolios, adding that not growth, but asset quality is the bigger risk for such units.
Withdrawal of such revolving credit could expose hidden borrower stress and weaken repayment behavior as revolving credit carries higher underwriting and collection risks across the sector, Bernstein said.
“While lenders such as Bajaj Finance may possess systems needed to manage these portfolios, the same may not hold true across the broader industry,” the Bernstein note said, adding that the credit demand may gradually shift to conventional term loans, thereby limiting the long-term growth impact.
Calling the draft a negative for the NBFC sector, Bernstein said that banks face a limited direct growth impact, but could see asset quality spillovers if borrower stress emerges.
According to IIFL, the RBI circular will impact growth and profitability of NBFCs. The brokerage expects an impact of around 15% on Bajaj Finance’s consolidated AUM and 20% of its standalone one.
“This can impact new customer acquisition / growth / stickiness, especially for NBFCs that have a meaningfully high exposure to products having this feature,” IIFL wrote in its note.
IIFL also sees fee income or yields to be impacted for lenders having meaningful exposure to such segments, given that these products carry a higher fee / yield compared to other simpler products. However, IIFL said that this could be potentially offset by imposing prepayment charges, which is otherwise not charged on loans with such features.
“However, given that this is a feature to attract customers, it may not impact demand at an overall level in the long term as lenders find a compliant offering and part of the demand shifts to credit cards, which are now the only compliant form of revolving credit line that can be offered by NBFCs,” IIFL added.
Shares of Bajaj Finance had recent hit record high levels after its June quarter results, which had also propelled the stock to a record high. Shares are now trading 5.6% lower on Friday at ₹1,081.2. The stock is still up 13% so far this year.
