India’s Reserve Bank is debating new restrictions on flexible credit products, aiming to balance financial inclusion for self-employed workers with the need for prudent oversight amid ongoing digital lending reforms.
India’s central bank is weighing whether to curb a form of flexible credit that has become especially useful to self-employed workers and smaller firms, even as it worries that looser repayment structures can be abused to disguise bad loans. The Reserve Bank of India is proposing that non-bank lenders be limited to fixed-term loans, while overdraft-style borrowing would be left to banks, according to the Business Standard opinion piece by Andy Mukherjee.
That debate sits on top of a much broader tightening of oversight. In 2022, the RBI issued digital lending rules that said only regulated entities, such as banks and non-bank financiers, may disburse loans and collect repayments, with money moving directly between borrower and lender accounts. The framework also sought clearer consent for data collection, tighter controls on credit-limit increases and more transparent disclosure of charges, reflecting the regulator’s concern about opaque lending practices in India’s fast-growing digital credit market.
The new proposal has drawn resistance because India’s labour market is still heavily dependent on irregular income. Mukherjee notes that less than half of urban workers and only 13% of rural workers receive monthly salaries, while more than 200 million people are self-employed. For those borrowers, banks can be reluctant to extend working-capital lines, and freelancers often struggle to obtain credit cards or prove stable income, leaving non-bank lenders to fill a real financing gap.
Industry practice suggests that not all flexi loans are the same. The Business Standard piece says major lenders such as Bajaj Finance and Aditya Birla Capital have already imposed internal safeguards, arguing in submissions to the RBI in 2024 that properly designed flexi loans are capped, amortised over a fixed period and not endlessly revolving. The article also says these loans can lower borrowing costs for customers while giving lenders a modest yield advantage over plain term loans.
The wider policy backdrop also shows that the RBI has been trying to balance caution with credit growth. In February 2025, it eased capital pressure on banks by restoring risk weights on loans to non-banking finance companies, a move that should support lending to shadow banks. Reuters reported in 2015 that the central bank had also relaxed some funding rules for the sector, underscoring that its approach has often been to manage risk rather than simply shut off credit. On that reading, the dispute over flexi loans is less about whether India should allow non-bank innovation than about how tightly it should police it.
Disclaimer: This article is intended to inform and educate, not to recommend or endorse any financial product, investment or strategy. Please consider your own financial circumstances and seek professional advice where appropriate before making financial decisions.
