India’s central bank proposals aim to limit non-bank lenders’ ability to offer revolving credit, sparking shifts in lending practices and UPI credit distribution amid ongoing regulatory tightening.
India’s central bank is moving to sharply restrict a type of lending that has long blurred the line between a one-off loan and an open credit facility. In draft directions issued on 6 August, the Reserve Bank of India said most non-bank lenders should be limited to term loans, effectively reserving revolving credit for banks and for non-banking financial companies, or NBFCs, that are specifically authorised to issue credit cards. The consultation remains open until 28 August. According to the draft, the change would mean borrowers who repay and then want to draw again would need to reapply rather than re-use the same sanction. The Ken reported that the RBI is treating revolving credit as a product it wants to keep out of most NBFC hands.
The distinction matters because revolving credit is already a live business line for some of India’s biggest non-bank lenders. Bajaj Finance offers flexi-loans that let customers dip repeatedly into an approved limit, while Tata Capital has business lines of credit built on the same borrow-repay-reuse structure. The products are not identical, but they share the feature that the RBI appears determined to curb. The draft also has implications for lending through the Unified Payments Interface, or UPI, which has become a major distribution channel for credit products. Finance ministry figures placed before Parliament showed that more than 549 million users had been onboarded to UPI by June.
The proposal sits within a busy year for RBI rule-making on NBFCs. In February, the central bank issued an amendment to its NBFC credit facilities directions that aligned asset classification and provisioning rules with its income recognition framework. In January, it tightened credit-risk rules for lending to related parties, bringing in board oversight, stricter definitions and anti-circumvention provisions from 1 April. These moves suggest the RBI has been steadily narrowing the room for regulatory arbitrage in the sector.
Other 2026 amendments underline the same direction of travel. In June, the RBI revised NBFC concentration-risk norms, removing exemptions for government-owned lenders and clarifying how state-backed exposures should be treated. It also updated rules covering agency business, with some conduct requirements shifted into a separate responsible-business framework that takes effect on 1 January 2027. In July, the bank further refined project-finance rules, allowing independent units to be financed separately if each is assessed as viable on its own. Taken together, the changes point to a regulator trying to standardise NBFC behaviour and reduce the scope for products or structures it sees as risky.
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