The Finance Industry Development Council (FIDC) has submitted objections to the RBI’s draft proposal aimed at restricting revolving credit facilities for NBFCs. The industry body warns that the move, which mandates strict term-loan structures, could reduce MSME access to vital working capital and increase operational costs. Stakeholder feedback on the draft, which excludes credit-card issuing NBFCs, ends today.
The Finance Industry Development Council (FIDC) has formally raised concerns regarding the Reserve Bank of India’s draft amendment directions released on August 6, 2026. The proposal seeks to prohibit Non-Banking Financial Companies (NBFCs) from offering revolving credit products, requiring them to shift towards strict term-loan structures. With the deadline for public feedback set for August 28, 2026, the industry is pushing for modifications to prevent potential disruption to small business lending.
At the heart of the debate is the distinction between revolving credit and term loans. Currently, many NBFCs provide flexible credit limits that allow borrowers to withdraw and repay funds as needed, similar to a bank overdraft or credit line. The RBI’s draft mandates that NBFCs strictly offer term loans, defined as having a fixed principal amount without the option for replenishment or restoration of limits upon repayment. This rule would not apply to NBFCs that are specifically authorized by the regulator to issue credit cards.
The FIDC argues that forcing MSME borrowers into a rigid term-loan format will create unnecessary financial and administrative burdens. If a small business can no longer use a flexible credit line, it may need to secure multiple term loans to meet fluctuating operational needs. This shift could lead to increased costs for borrowers due to repeated documentation, stamp duty requirements, and administrative fees. The industry body warns that this could inadvertently drive smaller businesses away from regulated NBFCs and toward informal, unregulated lenders.
The central bank’s initiative is largely aimed at addressing the systemic risk of 'evergreening.' This refers to the practice where lenders allow borrowers to repeatedly roll over loans or use fresh drawdowns to mask overdue debts, creating a cycle of perpetual borrowing. While the industry acknowledges the need to prevent such risks, the FIDC has proposed a compromise. They suggest allowing the restoration of principal within a fixed sanctioned limit, provided the repayment is made ahead of schedule. They argue this would maintain liquidity for working capital without crossing the regulatory line into automatic loan renewals.
The proposed rules also raise concerns regarding specific segments such as factoring services on the Trade Receivables Discounting System (TReDS) and loans against securities. FIDC members fear that without the ability to manage these transaction-specific limits, some NBFCs might be forced to exit these market segments entirely. There is also the risk of regulatory arbitrage, where NBFCs could be placed at a competitive disadvantage compared to banks, which are permitted to continue offering revolving facilities.
The final shape of these regulations will be a key monitorable for the sector. Investors will be watching for whether the RBI accepts the industry’s request for a middle ground, or if the final guidelines force a shift in the business models of NBFCs heavily exposed to MSME and working capital lending.