The Finance Industry Development Council prepares to oppose the Reserve Bank of India’s draft proposal to ban revolving credit products for non-bank finance companies, citing risks to liquidity and MSMEs.
The Finance Industry Development Council is preparing to tell the Reserve Bank of India that lenders are far from united over the central bank’s plan to bar non-bank finance companies from revolving credit products, arguing that a blanket ban could tilt the field towards banks. Raman Aggarwal, chief executive of the industry body, said FIDC was gathering views from members across supply-chain finance, loan against property and MSME lending before filing a formal response within the deadline.
The debate centres on the RBI’s draft issued on August 6, which would limit NBFCs to term loans with fixed repayment schedules and non-replenishing limits. That would stop borrowers from repeatedly drawing, repaying and redrawing funds under the same sanction, a structure widely used to meet short-term working-capital and liquidity needs. Once repaid, the limit would not reopen, and any fresh borrowing would need a new underwriting and sanction process.
Senior NBFC executives say the proposal could affect products tied to an outstanding portfolio of more than ₹2 trillion and hit MSMEs and individual borrowers hardest. One lender said the move would put NBFCs at a disadvantage because banks would still be able to offer similar short-term facilities. Another warned that replacing revolving lines with repeated term loans would increase documentation, servicing and turnaround times, pushing up costs for borrowers.
The RBI’s caution follows earlier supervisory concerns about revolving credit during inspection cycles, after which lenders say they changed product design and processes. Even so, NBFCs argue there has been no broad deterioration in asset quality or an outsized rise in credit costs. Industry estimates put the affected segment’s growth at 15% to 20% a year, with the market potentially doubling in four years, while FIDC is expected to argue that a one-size-fits-all rule could restrict legitimate liquidity needs, especially for smaller businesses.
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