Major Indian non-banking finance companies are requesting the Reserve Bank of India to reconsider its proposed ban on revolving credit products. Industry leaders warn that the move, which mandates a shift to rigid term loans, could disrupt over Rs 2 lakh crore in credit and disproportionately hurt MSMEs. With the feedback deadline set for August 28, 2026, the sector is seeking a formal dialogue to address operational concerns.
The Reserve Bank of India (RBI) issued draft amendments on August 6, 2026, to the 'NBFC Credit Facilities Directions,' proposing a significant shift in how non-banking finance companies (NBFCs) can structure loans. The draft seeks to prohibit revolving credit facilities, requiring lenders to transition toward term loans with fixed amounts and predefined repayment schedules. This proposed change has triggered immediate concern among leading industry players, including Bajaj Finance, Tata Capital, and Shriram Finance, who met on August 14, 2026, to coordinate a formal response through the Finance Industry Development Council.
The core of the industry's concern lies in the potential disruption to established business models. Revolving credit products, such as digital credit lines and flexi-loans, allow borrowers to withdraw and repay funds within a sanctioned limit, providing flexibility that standard term loans lack. NBFCs estimate that this change could affect assets under management (AUM) exceeding Rs 2 lakh crore. These products are popular among micro, small, and medium enterprises (MSMEs) and individual borrowers, who rely on them for short-term liquidity and working capital management.
From an operational perspective, the transition presents several challenges. Lenders argue that replacing revolving facilities with term loans would necessitate repeated credit appraisals, extensive documentation, and complex disbursement processes. These changes could increase the overall cost of operations, which might eventually be passed on to borrowers in the form of higher interest rates or processing fees. Furthermore, industry executives are concerned that the ban would create a competitive disadvantage for NBFCs compared to banks, which can continue to offer similar working-capital products. This discrepancy, they contend, challenges the goal of maintaining a level playing field across the lending sector.
Following the release of the draft guidelines on August 7, 2026, market sentiment regarding NBFC stocks reacted negatively, with several major lenders seeing price declines of up to 5% as investors assessed the potential impact on future growth. The segment has been growing at an annual rate of 15% to 20%, and stakeholders are anxious that the new rules could dampen this trajectory. While the RBI's supervisory department has flagged concerns about these products in previous inspection cycles, NBFCs assert they have already implemented necessary modifications and argue that a blanket ban is not the appropriate solution.
The Reserve Bank of India has opened the draft for public feedback until August 28, 2026. The industry is lobbying for a direct dialogue with regulators to propose alternatives, such as targeted supervision rather than a complete prohibition of these credit facilities. For investors, the next critical update will be the finalization of these guidelines, as the outcome will dictate whether NBFCs must undertake a large-scale redesign of their product offerings and how that might influence profitability and credit growth in the coming quarters.