The Reserve Bank of India (RBI) has taken an important step by introducing new draft norms for Non-Banking Financial Companies (NBFCs). Under these norms, it is proposed to prevent most NBFCs from offering revolving credit facilities, meaning they will now be able to give only term loans.
This proposal has come in the form of an amendment to the RBI’s (Non-Banking Financial Companies – Credit Facility) Directions, 2025. Let us understand what this matter actually is, what the new definitions say, and what its implications could be going forward.
What’s Happening?
RBI has proposed draft amendments in the 2025 Credit Facilities Directions, under which NBFCs will be able to offer only those credit products that are of the nature of term loans. According to RBI’s draft, ‘NBFC shall offer only such credit products that are of the nature of term loans and shall not offer any revolving credit product’.
This restriction will not apply to those NBFCs that have been specially authorised by RBI to issue credit cards, because revolving credit is inherent in the form of credit cards itself. Along with this, formal definitions of ‘term loan’ and ‘revolving credit’ have also been introduced for the first time under these Directions.
Term Loan versus Revolving Credit: New Definitions
According to the new draft, a term loan is a fund-based facility whose sanction amount is fixed, which is disbursed in one or more instalments and is repaid according to a pre-determined amortisation plan, that is, regular instalments or a one-time payment on the maturity date. The most important thing is that once disbursed, the sanction limit cannot be restored or refilled on full or partial repayment of the principal.
On the other hand, any fund-based facility that does not meet this definition of term loan will be considered revolving credit. In addition, RBI has also proposed to remove an existing provision of Chapter II of the 2025 Directions and to abolish the ‘Demand/Call Loans’ chapter, in place of which a new section named ‘Restrictions on Revolving Credit Facilities’ will be brought.
Which Products will be Affected?
If RBI’s this proposal is implemented, the maximum impact may fall on those revolving credit products in which the customer can repeatedly withdraw and repay money within the approved limit and borrow again. These may include products such as flexi loans, overdraft-style products, digital line of credit, working capital and cash credit limits.
RBI has said in its draft that NBFCs will be able to offer only credit products of the nature of term loans and will not be able to give revolving credit products. In such a situation, many existing loan products may have to be redesigned in accordance with the new rules.
What Does This Mean for Investors?
Although this proposal falls under the regulatory ambit, it also has implications for those investing in the NBFC sector. Its direct indication is that those NBFCs that depend on products like flexi loans, overdraft or digital line of credit for their business model will have to make changes in their product structure.
On the other hand, NBFCs authorised by RBI to issue credit cards will remain outside the purview of this restriction, due to which a clear distinction emerges within the sector. Along with this, if the draft is notified in its existing form, it will be effective immediately, which indicates uncertainty in the process of redesigning existing products. Keeping an eye on these aspects can be useful for investors.
What’s Next?
RBI has sought suggestions and comments from all stakeholders on these proposed rules by 28 August 2026. After that, final guidelines will be issued on the basis of the feedback received. As soon as the notification is issued, the new rules will come into force with immediate effect.
If this draft is implemented in its existing form, there will be an amendment in the Credit Facilities Directions issued in November 2025. Under this, a clear distinction will be made between term loan and revolving credit facility and the permission for revolving credit may remain limited only to credit card issuers authorised by RBI. From this, the lending framework in the NBFC sector is expected to become clearer and more standardised.
Disclaimer: This article is for educational and informational purposes only and does not constitute investment advice or a recommendation to buy or sell any securities. The companies mentioned are cited as examples within the context of market developments. Investors are advised to conduct their own due diligence and consult their financial advisor before making any investment decisions.
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