RBI has released a draft amendment to the NBFC Credit Facilities Directions, 2025. This could change the way NBFCs structure and offer credit products.
What happened?
The draft proposes that NBFCs should only be allowed to offer term loans. They would no longer be permitted to offer revolving credit facilities, unless RBI has separately authorised them to issue credit cards.
It also defines ‘term loan’ and ‘revolving credit’ for the first time. A term loan can be disbursed in one or more tranches, but repayment must follow a fixed schedule. Once repaid, the credit limit cannot be restored or reused. Any facility that does not meet this definition will be treated as revolving credit, which NBFCs can no longer offer.
Why is RBI doing this?
This move fits a pattern. RBI has repeatedly flagged the rapid growth of unsecured retail credit, particularly through Fintech–NBFC partnerships. Early last year, it expressed specific concerns about NBFCs offering high-risk loan products such as revolving credit lines. We wrote about it here.
The concern is that borrowers may use revolving credit to repay existing dues, creating a cycle of debt. A borrower can draw funds, repay the amount, and use the same credit limit again without closing the facility.
This makes it harder to assess whether repayments are coming from genuine income or fresh borrowing. Banks can check this through a customer’s account activity but NBFCs usually do not have the same visibility, making over-leverage harder to detect early.
What is the impact?
The restriction addresses a potential risk. But it also removes products with genuine, low-risk benefits. Working capital and supply chain finance are good examples, where the revolving structure is the unique selling point of the product.
For instance, a small business may use a revolving credit facility to buy raw materials, repay the amount after receiving payments from its customers, and draw again for the next production cycle. The business meets its recurring needs without taking a new loan each time.
Further, NBFCs offering such products also further financial inclusion by serving thin-file customers who may lack a long credit history or traditional collateral but have regular business activity and predictable cash flows.
A balanced approach could help
Instead of a blanket restriction on NBFC from offering revolving credit that may limit legitimate use cases such as supply chain financing, RBI could consider a risk-based framework that addresses the underlying concerns through appropriate safeguards. This could include due diligence and monitoring obligations for NBFCs offering such products. It could also include an early warning system to flag signs of borrower distress before they escalate.
A calibrated framework can help address RBI’s concerns while allowing responsible innovation in digital credit.
Image credits: AI generated
Author Credits: Aparajita Srivastava, Astha Srivastava and Samyukta Iyer.
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