RBI Proposes Ban on Revolving Credit Products by Most NBFCs; Credit Card Issuers Exempt

The Reserve Bank of India (RBI) has proposed restricting most non-banking financial companies (NBFCs) from offering revolving credit facilities, a move that could change the range of lending products available through the sector. 

The proposal forms part of draft amendments to the Reserve Bank of India (Non-Banking Financial Companies – Credit Facilities) Directions, 2025. If implemented, NBFCs would be permitted to offer only term loan products, while NBFCs authorised by the RBI to issue credit cards would remain exempt from the restriction. 

RBI Proposes Restricting NBFCs to Term Loans 

Under the draft amendments, RBI has proposed that NBFCs should provide only term loans and should not offer revolving credit products. 

The central bank has also introduced formal definitions for these lending products under the directions for the first time. 

According to the draft: 

The proposed restriction will not apply to NBFCs authorised by the RBI to issue credit cards. 

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Other Proposed Changes to the Directions 

As part of the draft amendments, the RBI has proposed removing the existing provisions related to Demand/Call Loans from the 2025 directions. 

In their place, the regulator has proposed introducing a new section titled "Restrictions on Revolving Credit Facilities", which states that eligible NBFCs should offer only term loan products and not revolving credit facilities, except where the credit card exemption applies. 

If the amendments are notified in their current form, they will come into effect immediately. 

Draft Open for Public Feedback 

The RBI has released the proposal in draft form and invited public comments before issuing the final notification. However, the draft does not specify a deadline for submitting comments. 

Conclusion 

The RBI's draft amendments seek to limit most NBFCs to offering term loan products while restricting revolving credit facilities, except for authorised credit card issuers. If implemented, the changes could alter the credit products available through NBFCs and revise the regulatory framework governing their lending operations. 

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