RBI Proposes Restricting NBFCs To Term Loans, Bars Revolving Credit

New Delhi, Aug 8 (KNN) The Reserve Bank of India (RBI) has proposed restricting non-banking financial companies (NBFCs) to offering only term loans, effectively disallowing revolving credit products under draft amendments to its Credit Facilities Directions, 2026.

Under the proposal, NBFCs will be permitted to offer only term loan products and will be barred from providing revolving credit facilities. However, this restriction will not apply to NBFCs authorised by the Reserve Bank of India (RBI) to issue credit cards, where revolving credit is an inherent feature.

Loan Types

The draft guidelines define a term loan as a fund-based credit facility with a fixed sanctioned amount, disbursed in one or more instalments and repaid according to a predetermined schedule. Once repaid, the credit limit cannot be restored or reused.

In contrast, any facility that does not meet these criteria will be classified as revolving credit, typically allowing borrowers to draw, repay and reuse funds within an approved limit.

Impact on Lending Products

If implemented, the move could reshape several lending products offered by NBFCs, including flexi loans, overdraft-style facilities and digital credit lines commonly used in retail and fintech partnerships.

The proposed framework builds on the existing Credit Facilities Directions issued in November 2025, with the aim of creating clearer distinctions between loan structures and strengthening regulatory oversight.

Consultation Open Till August 28

The RBI has invited comments from stakeholders, including regulated entities and the public, on the draft amendments by August 28, 2026. The changes will come into effect once formally notified.

(KNN Bureau)