The Reserve Bank of India (RBI) has issued a draft circular proposing significant changes for Non-Banking Financial Companies (NBFCs), suggesting they be permitted to offer only term-loan products and be barred from providing revolving credit facilities.
This proposal, issued on August 6, 2026, defines revolving credit as any fund-based credit facility that does not meet the definition of a term loan. While the central bank seeks to standardize lending practices, the move has drawn attention to its potential impact on diverse financial institutions.
Tata Capital Anticipates Minimal Disruption
Non-banking finance major Tata Capital has indicated that the proposed restrictions will have a limited effect on its operations. According to CEO Rajiv Sabharwal, speaking on the sidelines of the FICCI FIBAC summit, less than 5% of the company's total loan book currently comprises revolving credit. Tata Capital plans to share its feedback with the RBI regarding the draft circular.
Sabharwal affirmed the company's commitment to complying with the final regulations, stating that despite the changes, the impact on Tata Capital is not expected to be significant.
Broader Industry Implications and Exemptions
The draft circular notes an exemption for NBFCs specifically authorized by the RBI to issue credit cards. Currently, this exemption would apply only to SBI Cards and Payment Services, a unit of State Bank of India, and BobCard, an arm of Bank of Baroda. Other prominent NBFCs, including Bajaj Finance, could face restructuring challenges if the proposal is implemented as drafted.
Industry forums and other NBFCs are also expected to provide their feedback to the regulator during the consultation period.
Expert Insights on Potential Impacts
- Shreya Khandelwal, Research Analyst at PL Capital (Prabhudas Lilladher): Khandelwal suggests that any reusable credit line, overdraft facility, or flexi-loan product offered by NBFCs across corporate, MSME, and unsecured personal loan categories would likely be affected. She noted that NBFCs might need to restructure existing revolving credit products, which could impact customer propositions, fee income, and product economics. However, diversified NBFCs are likely better positioned to mitigate these disruptions through alternative product offerings.
- Jugal Mantri, ED and CEO, Anand Rathi Global Finance: Mantri highlighted that NBFCs might lose the ability to offer line-of-credit facilities against collateral. He commented that while this could bring greater regulatory consistency, it might also remove an important flexibility for borrowers and potentially give banks an advantageous position, creating an uneven playing field.
The proposed changes could also significantly affect fintech firms and new-age digital lenders that rely heavily on credit-line facilities in their product portfolios.