FIDC Urges RBI To Reconsider NBFC Revolving Credit Curbs, Flags MSME Impact

New Delhi, Aug 29 (KNN) The Finance Industry Development Council (FIDC), an industry body representing non-banking financial companies (NBFCs), has urged the Reserve Bank of India (RBI) to reconsider its proposed blanket restriction on revolving credit products. 

They warned that the move could affect borrowers, particularly micro, small and medium enterprises (MSMEs).

FIDC submitted its response on August 27 to the RBI’s draft 2026 directions, which seek to restrict NBFCs from offering revolving credit facilities, reported Business Standard.

The draft defines revolving credit as fund-based facilities that do not meet the criteria for term loans, which have fixed principal, predetermined repayment schedules and no restoration of the sanctioned limit after repayment. 

NBFCs would be limited to term-loan-like products, except those authorised to issue credit cards.

FIDC Seeks Wider Recognition Of NBFC Credit Products
FIDC said several NBFC products may not fit the proposed definition of a term loan or function like credit cards and bank overdrafts. 

These include supply-chain finance, working-capital loans, MSME loans, vehicle dealer loans, loans against securities, personal loans and fintech-focused products.

It warned that many such facilities serve MSMEs and individuals, and a significant share of outstanding credit could be affected if the draft is implemented in its current form.

Industry Seeks Flexibility On Redraws
A key concern for FIDC is the proposal preventing restoration or replenishment of a sanctioned limit after repayment of principal.

It said borrowers using such facilities for working capital could face higher interest and operational costs if they are required to obtain multiple fresh term loans instead of drawing again from an existing sanctioned facility.

FIDC Seeks Distinction Between Redraws And Evergreening
FIDC urged the RBI to distinguish between restoring repaid principal within an existing facility and practices such as rollover, renewal or evergreening.

It backed curbs on perpetual credit and automatic renewals, but proposed allowing limited redraws for facilities with fixed limits, predetermined repayment schedules and final maturities.

Proposed Safeguards For Limited Redraws
Under its proposed modification, borrowers could restore or replenish amounts of principal repaid ahead of the contractual schedule, subject to safeguards.

Such redraws would not be permitted to increase the original sanctioned amount, extend the final maturity or operate when any amount under the facility is overdue.

FIDC Flags MSME Working Capital Impact
FIDC said the proposed restrictions could reduce flexibility for borrowers with fluctuating working-capital needs, potentially increasing interest, documentation, processing and administrative costs.

It also warned that limiting NBFC credit products could push smaller MSMEs and retail borrowers towards informal finance where access to bank working capital is limited.

(KNN Bureau)