The Reserve Bank of India’s draft rules to ban revolving credit by non-banking financial companies may lead to significant product redesigns, affecting corporate, MSME, and personal lending sectors, according to Morgan Stanley.
The Reserve Bank of India’s proposed restrictions on revolving credit by non-banking financial companies could reshape a range of flexi and overdraft-style loans, Morgan Stanley said in a report, with corporate, MSME and unsecured personal lending most exposed.
According to the brokerage, the draft framework would prevent NBFCs from offering revolving credit products, except where a lender is authorised to issue credit cards. Loans would instead need a fixed repayment path, and credit limits would not be restored after borrowers make principal repayments. Morgan Stanley said that could affect the way many NBFCs structure products, particularly those designed to give customers repeated access to funds without reapplying.
The report also noted that lenders are likely to push back, arguing that revolving facilities help borrowers manage cash flow and reduce interest costs by drawing only what they need. Shifting wholesale to term loans, Morgan Stanley said, could force customers to borrow earlier than necessary and leave funds sitting idle, creating a drag on returns and increasing borrowing costs. Even so, the bank believes NBFCs may be able to redesign products so they remain compliant while preserving much of the customer appeal.
India’s broader NBFC rulebook has been tightening. The RBI’s Non-Banking Financial Companies – Credit Facilities Directions, 2025, which consolidated prudential and conduct norms across the sector, came into force immediately and covers areas including digital lending, gold and silver-backed loans, housing finance and microfinance, while strengthening disclosures, cooling-off periods and grievance handling. Separately, the central bank has also issued draft rules on co-lending, non-fund-based credit facilities and access to the term money market, underlining a wider push to standardise how lenders operate. Morgan Stanley said the eventual effect of the revolving-credit proposal may be limited if it is applied evenly across the industry, and especially if existing facilities are left in place while only new loans are covered.
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