The Reserve Bank of India has issued draft guidelines proposing to restrict non-banking financial companies from offering revolving credit and flexi-loan facilities. The move aims to force a shift toward standardized term loans, creating potential growth hurdles for lenders. Meanwhile, the gold loan sector has surged 69.3% year-on-year to ₹3.41 lakh crore as NBFCs increasingly pivot toward secured, asset-backed lending.
The Reserve Bank of India (RBI) has released draft amendments to its Credit Facilities Directions that could significantly change how non-banking financial companies (NBFCs) design their loan products. The proposal seeks to restrict NBFCs to offering only term loans, effectively barring them from providing revolving credit products, such as flexi-loans and overdraft-style facilities. These products have historically been a key tool for NBFCs to drive loan growth and onboard retail and MSME customers, as they offer borrowers flexibility in repayment and borrowing limits.
Impact on Lending Strategies
For many NBFCs, particularly those focused on consumer finance, the ability to provide flexible credit has been a core part of their strategy. These products allow customers to borrow, repay, and redraw funds within a sanctioned limit, acting somewhat like an active line of credit. If the draft norms are finalized after the consultation period, which ends on August 28, 2026, lenders currently relying on these structures would be forced to shift their entire portfolio toward standardized term loans. This transition could lead to operational disruptions and potentially slow down credit growth, as the products will need to be redesigned to meet strict regulatory definitions. Market analysts have noted that NBFCs with higher exposure to such flexible credit portfolios, such as Bajaj Finance, may face more pronounced challenges in adapting their business models.
The Pivot to Gold Loans
As regulatory guardrails tighten on unsecured and flexible lending, NBFCs are increasingly focusing on secured, asset-backed categories. The gold loan segment has seen rapid expansion, with outstanding loans growing by 69.3% year-on-year to reach ₹3.41 lakh crore as of June 2026. This shift is seen as a strategic move to prioritize safer, tangible assets that offer better credit quality and comfort to regulators.
This growth in gold lending comes even after the implementation of standardized gold loan regulations, including tiered loan-to-value (LTV) ratios and transparent auction norms, which took effect on April 1, 2026. While the gold segment currently acts as a safe haven, it is not immune to risk. The sector remains sensitive to fluctuations in gold prices, and any significant correction in commodity values could affect the quality of these loan portfolios.
Competitive Disadvantage and Risks
One of the main investor concerns regarding the proposed norms is the competitive imbalance between NBFCs and commercial banks. Banks are not subject to the same restrictions on revolving credit facilities and will continue to offer overdraft and cash-credit products. This disparity could put NBFCs at a disadvantage, as small businesses and retail borrowers may migrate to banks if they prefer flexible credit structures. Furthermore, the need to migrate to term-loan products could compress fee income and yields, as these models often have different pricing and revenue dynamics compared to revolving credit facilities. Investors will be monitoring the finalization of these norms, the deadline for which is August 28, 2026, and any further clarifications from the management of major NBFCs regarding their portfolio transition plans.