The Finance Industry Development Council has formally petitioned the RBI to rethink draft rules that would restrict NBFCs from offering revolving credit. Industry stakeholders warn this change could disrupt working capital for MSMEs and force non-bank lenders to overhaul their product models. The public feedback window for these proposed regulations closed on August 28, 2026.
The Finance Industry Development Council (FIDC), representing India’s non-banking financial companies (NBFCs), has officially submitted its feedback to the Reserve Bank of India (RBI) regarding the central bank’s draft guidelines on revolving credit. The RBI’s proposal, released on August 6, 2026, aims to restrict NBFCs from offering credit lines that allow borrowers to draw, repay, and redraw funds—similar to a credit card facility—unless the lender holds a specific credit card license.
The Industry Concern
At the heart of the debate is the flexibility of credit. Unlike a standard term loan, where a borrower receives a lump sum and pays it back over a fixed time, revolving credit allows small business owners to access funds repeatedly as needed. This flexibility is often used to manage daily cash flow gaps during business cycles. The FIDC and other industry voices argue that a blanket ban would force a shift toward rigid term loans. This transition could increase operational friction for small and medium enterprises (MSMEs), which rely on these flexible facilities to keep their operations running smoothly without the burden of immediate, fixed repayment schedules.
RBI's Regulatory Focus
The RBI’s move is driven by systemic stability concerns. The central bank has pointed to risks like "evergreening"—a practice where borrowers take new loans to pay off existing debt, effectively masking financial stress rather than resolving it. By limiting revolving credit, the regulator aims to prevent the accumulation of hidden debt layers within the shadow banking ecosystem. The RBI is concerned that without strict controls, revolving credit can be used to fuel cycles of borrowing that eventually lead to defaults.
Impact on NBFC Business Models
For investors, the outcome of this regulatory process is important as it directly impacts the business models of many NBFCs. Many of these lenders have built their portfolios around retail and SME clients who prioritize flexibility. If the proposed guidelines are implemented as written, NBFCs may face three distinct challenges. First, they might lose competitive ground to banks, which can still offer credit card-linked revolving facilities. Second, they would likely incur costs to migrate their existing loan books into new, compliant products. Finally, the restriction could affect borrower retention if customers choose to move to lenders that offer more flexible credit structures.
What Investors Should Monitor
With the public consultation period concluding on August 28, 2026, the market will now look to the RBI for the final notification. Investors in the NBFC sector should monitor whether the regulator decides to soften the rules, perhaps by allowing some forms of revolving credit under stricter risk-mitigation safeguards, or if it proceeds with the strict ban. Any final rule will influence how NBFCs structure their SME and retail lending portfolios moving forward, potentially impacting loan growth and profit margins for lenders with significant exposure to these segments.