RBI Seeks to Reshape NBFC Lending Landscape
The Reserve Bank of India (RBI) has unveiled a significant proposal aimed at redefining the lending products offered by most non-banking financial companies (NBFCs). The central bank's draft amendments to the Reserve Bank of India (Non-Banking Financial Company) Directions, 2025, suggest that NBFCs would largely be restricted to offering only term loan products, effectively banning most revolving credit facilities.
This move, announced on August 7, 2026, marks a pivotal regulatory shift, introducing formal definitions for both "term loan" and "revolving credit" into the RBI's guidelines for the first time. The primary objective is to bring greater clarity and establish a more uniform regulatory framework across the non-bank lending sector.
Term Loans vs. Revolving Credit: New Definitions
Under the proposed framework, a term loan is clearly defined as a fund-based credit facility where a fixed principal amount is sanctioned and disbursed either as a lump sum or in installments. Borrowers would adhere to a predetermined repayment schedule, and critically, the sanctioned credit limit cannot be restored or replenished once the principal is repaid.
Conversely, revolving credit encompasses any fund-based credit facility that does not meet the definition of a term loan. These facilities typically allow borrowers the flexibility to repeatedly draw down, repay, and then reuse the sanctioned credit limit without the need to apply for a fresh loan each time. This product type is what the new RBI revolving credit ban primarily targets.
Exceptions and Implications of the Proposal
The proposed restriction on revolving credit facilities would not apply to NBFCs that have received specific authorization from the RBI to issue credit cards. These select entities would be permitted to continue offering revolving credit through their card-based products.
To implement these changes, the RBI plans to remove existing provisions related to Demand/Call Loans and introduce a new section titled "Restrictions on Revolving Credit Facilities." If these amendments are finalized and notified in their current form, they are expected to come into effect immediately.
The RBI has invited public feedback on the draft amendments, though no specific deadline for submissions has been announced. Should the proposal be enacted, many NBFCs would likely need to undertake a significant redesign of their existing lending products to align with the new term loan-only regime, fundamentally altering the financial products available to consumers and businesses through these institutions.