The Reserve Bank of India has proposed draft amendments to limit the use of revolving credit facilities by non-banking financial companies, aiming to enhance transparency and reduce financial risks in short-term lending products.
The Reserve Bank of India has moved to curb the use of revolving credit facilities by most non-banking financial companies, a change that could narrow the range of short-term lending products available outside the banking system. In draft amendments to its Non-Banking Financial Company Directions, 2025, the central bank said lenders should generally offer term loans rather than revolving credit, with the main exception being NBFCs that are specifically authorised to issue credit cards.
Under the proposed definition, a term loan would be a fixed amount of credit, disbursed either in one sum or in instalments and repaid on a set schedule. Once repaid, the borrower would not be able to draw that sum again, unlike a revolving facility, which allows repeated borrowing up to an approved limit. The RBI said the draft would add a new section on restrictions on revolving credit facilities and, if adopted without changes, would take effect immediately.
According to the RBI, the aim is to improve transparency and create greater consistency in the credit products offered by NBFCs. The proposed shift could force lenders to redesign products that currently rely on flexible redraw features. That concern fits a broader pattern in the central bank’s recent approach, which has shown unease about perpetual credit lines and the risk that they can obscure repayment capacity and encourage evergreening, where overdue borrowing is repeatedly rolled over.
The draft has been released for public comment, although the RBI has not set a deadline for responses. The move comes after a separate set of Non-Banking Financial Companies Credit Facilities Directions, 2025, took effect on April 1, 2026, standardising parts of the sector’s lending framework and tightening requirements around board-approved credit policies, digital lending, microfinance, disclosures and data privacy. Earlier this year, the RBI also finalised co-lending rules requiring each lender to retain at least 10% of an originated loan on its books, underlining its push for clearer risk-sharing and stronger borrower safeguards.
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