The Finance Industry Development Council plans to oppose the Reserve Bank of India’s proposed restrictions on revolving credit for non-bank lenders, warning of market disruption and increased costs for borrowers.
The Finance Industry Development Council is preparing to tell the Reserve Bank of India that a proposed ban on revolving credit for non-bank lenders could unsettle a wide range of financing products and tilt the market further towards banks, according to Business Standard. The self-regulatory body for the non-banking finance company sector is collecting feedback from members before filing its response to the central bank within the deadline.
Industry executives said the plan could affect credit lines with an outstanding book of more than ₹2 trillion, with small and medium-sized enterprises, supply-chain finance borrowers and individuals likely to feel the sharpest impact. One lender argued that a broad prohibition would leave NBFCs at a disadvantage because banks would still be able to offer similar short-term liquidity and working-capital facilities. Another said lenders would have to replace revolving lines with repeated term loans, raising underwriting, documentation and servicing costs while slowing access to credit.
According to the RBI’s draft guidelines issued on August 6, NBFCs would be limited to term loans, which have fixed repayment schedules and do not replenish once borrowers repay part of the balance. That would stop borrowers from drawing, repaying and drawing again within the same sanctioned limit, a structure commonly used for working-capital needs. The proposal follows supervisory concerns raised during earlier inspections, when the central bank flagged risks linked to revolving credit products offered by NBFCs.
The industry, however, says it has already adjusted its products after earlier consultations and disputes the need for a blanket ban. Lenders argue that credit quality has not deteriorated broadly and that the affected segment is still growing at 15% to 20% a year, with some estimating it could almost double over the next four years. FIDC chief executive Raman Aggarwal said the council would submit a balanced response reflecting views across large and small NBFCs, including those in supply-chain finance, loan against property and MSME lending. A broader concern, lenders said, is that the RBI’s move could amount to regulatory arbitrage if banks continue offering similar facilities.
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