The Reserve Bank of India has outlined new draft rules aiming to curb revolving credit for non-banking financial companies, seeking to enhance supervision, protect borrowers, and align with bank regulation standards amid broader sector tightening measures.
The Reserve Bank of India has moved to tighten the rules governing non-banking financial companies’ lending products, proposing that they should not extend revolving credit, including facilities similar to credit lines, without prior approval from the central bank. Under the draft framework, NBFCs would be confined to term loans, which carry fixed repayment schedules, unless the RBI grants permission for a different structure.
According to the proposal, the change is aimed at strengthening supervision of NBFC lending, improving consistency with the rules that apply to banks and protecting borrowers while supporting financial stability. The draft has been issued for consultation, meaning the central bank will review feedback from industry participants before deciding on a final version.
The move fits a broader pattern of RBI tightening and refining oversight of the non-bank sector. In October 2025, the central bank released draft directions on lending to related parties, widening the scope beyond loans and advances to include non-fund-based exposures, contracts and other arrangements, while also seeking to set quantitative limits for such lending. In February 2026, it proposed easing compliance for smaller NBFCs that do not use public funds and do not deal directly with customers, while in April it suggested revising the test for identifying upper-layer NBFCs and including state-run entities.
The central bank has also been trying to balance tighter supervision with measures intended to improve market access and liquidity. In June 2026, it proposed allowing NBFCs and other financial institutions to participate more broadly in the term money market as both borrowers and lenders, a step market participants said could improve liquidity management. Together, these measures suggest the RBI is trying to draw clearer lines around which activities NBFCs may undertake while giving the sector more flexible access to funding.
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