The Reserve Bank of India has unveiled draft amendments aiming to restrict non-banking financial companies to offering only term loans, potentially revolutionising retail credit products and tightening supervision.
The Reserve Bank of India has proposed a sharp tightening of the rules governing non-banking financial companies, moving to limit them to term loans and barring revolving credit products under draft amendments to its Credit Facilities Directions, 2026. According to the proposal, only lenders authorised by the central bank to issue credit cards would be exempt, since revolving credit is central to those products.
Under the draft definition, a term loan is a fixed amount of funding paid out in one or more instalments and repaid on a set schedule. Once the borrower clears the balance, the credit cannot be drawn again. Any facility that does not fit that structure would be treated as revolving credit, meaning funds can be borrowed, repaid and borrowed again within the approved limit.
If adopted, the change could have a wide effect on products that have become common across retail lending, including flexi loans, overdraft-style arrangements and digital credit lines used in partnerships between NBFCs and fintech firms. Business Standard reported earlier this year that the RBI had already warned some lenders about perpetual credit lines, saying they resembled cash credit facilities that NBFCs are not permitted to offer, and had urged caution over products that allow repayment without a fixed amortisation path.
The latest draft appears to build on a broader tightening of NBFC supervision. Reuters has previously reported that the central bank has also been refining its co-lending framework, setting minimum retention requirements for lenders and widening the scope of such arrangements. In that context, the new proposal suggests the RBI is trying to draw a cleaner line between traditional instalment lending and products that function more like open-ended credit. The central bank has invited comments on the draft changes until August 28, and the rules will take effect only after formal notification.
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