NBFCs shall only offer credit products which are in nature of term loans and shall not offer any revolving credit products.
That one line, buried in a routine-looking draft from the Reserve Bank of India, set off a chain reaction across India’s shadow banking sector. It landed on August 6, 2026. Since then, it has become the single most talked-about compliance issue in the NBFC world.
But here’s the twist. Industry feedback has already started to change the shape of the room. What started as a blanket ban on revolving credit is now looking more like a negotiation over where exactly the line should sit.
If you run an NBFC, or work in credit risk, product, or compliance at one, this matters. Let’s break down what happened, why the mood has shifted, and what product changes make sense no matter how the final rule turns out.
What the Draft Actually Proposed
In its draft amendments to the Credit Facilities Directions for NBFCs, the RBI said NBFCs shall only offer credit products that are in the nature of term loans and shall not offer any revolving credit products. This restriction would not apply to NBFCs authorised to issue credit cards.
That exemption covers almost nobody. Only two NBFCs in India, SBI Card and BoB Cards, are authorised to issue credit cards. So for the rest of the sector, the rule as written would be a full stop on revolving credit.
The draft also gave the two terms real legal weight. It introduced formal definitions of “term loan” and “revolving credit” under the RBI’s NBFC framework. A term loan is a fixed amount, paid out once (or in tranches), and repaid on a schedule. Once it’s paid down, the limit does not come back. Revolving credit is the opposite. You draw, you repay, you draw again, as long as you stay in good standing.
If the amendments are finalised as written, they would come into force immediately once notified. That immediacy is what made NBFCs sit up.
Why Now: The Room Has Changed
This is not a case of the RBI issuing a rule and the industry quietly accepting it. Feedback has been loud, detailed, and fast.
Lenders including Bajaj Finance, Tata Capital, and Shriram Finance sought meetings with RBI officials to raise concerns about the draft. Senior representatives from some of the country’s largest NBFCs met to finalise the issues they wanted to raise with the regulator.
The scale of what’s at stake is large. NBFCs have argued that the proposed framework could affect products with aggregate assets under management exceeding ₹2 lakh crore. The industry says nearly 90% of this lending serves MSMEs and individuals. There’s also a fairness argument. Lenders are concerned the move could create an uneven playing field, since banks would still be able to offer similar working-capital and short-term liquidity products.
At one large NBFC, flexi loans alone make up a meaningful chunk of the book. Reports peg them at roughly 13% of Bajaj Finance’s portfolio, concentrated heavily in MSME lending. That’s not a side product. That’s a core business line.
The blanket-ban-vs-partial-restriction debate
This is where the conversation has really moved. Early reactions treated the draft as an all-or-nothing ban. Now, the debate has narrowed to a much more specific question: how do you draw the line between real revolving credit and products that only look revolving on the surface?
A key concern for lenders is the treatment of products that allow limited redraw or replenishment within an existing sanctioned facility. NBFCs argue that such facilities do not necessarily count as the kind of revolving lending the RBI wants to restrict. One industry executive put it simply: there’s something in between a conventional term loan and what the RBI may be defining as revolving credit, and that grey zone is where the industry wants more clarity.
Supply-chain finance sits right in the middle of this grey zone. It’s another area where NBFCs have asked for an exemption or specific clarification. That makes sense once you look at how the product actually works. Supply-chain finance is typically structured as term loans of 30 to 180 days, where each tranche is a distinct term loan within an overall credit limit set by the NBFC. These facilities are mostly used by MSMEs with seasonal or cyclical businesses, to cover peak credit needs or short-term liquidity gaps that banks don’t fully meet. Functionally, it can look like term lending, tranche by tranche. But sitting inside an overall limit that refreshes, it can also look revolving. That ambiguity is exactly what the industry wants resolved.
Even the RBI itself has signalled this is a genuine process, not a done deal. One NBFC chief executive noted that the RBI is still receiving a lot of views, and that the whole point of a draft is to absorb feedback before converting it into regulation. On timing, the final guidelines on revolving credit could take another two months, as the RBI works through the feedback before deciding the scope of restrictions.
There’s also a compliance signal worth noting. When RBI officials met NBFC executives to discuss the draft, they stressed the need for strong internal audit, compliance, and risk-management systems, especially for products that are growing fast. That’s a strong hint about where this is heading. Even if the final rule allows more room than the draft suggests, the RBI clearly wants tighter controls around any product that isn’t a simple, single-disbursement loan.
What This Means: Don’t Wait for the Final Rule
Here’s the trap many NBFCs could fall into. It’s tempting to treat this as a wait-and-watch situation. “Let’s see what the final rule says, then we’ll redesign our products.” That’s a risky bet, for three reasons.
First, the direction of travel is clear even if the exact boundary isn’t. The RBI wants less ambiguity between term loans and revolving credit, whatever the final line looks like. Second, rules can come into force immediately on notification, leaving very little runway to adjust systems and contracts. Third, and most important, several of the changes NBFCs would need to make are good practice anyway, regardless of what RBI decides. They reduce risk, improve reporting, and make audits easier.
So the smarter move is to ask: what product and process changes make sense no matter how the final rule lands? Here’s where I’d focus.
Make every drawdown a distinct, documented term loan
If your product currently works like a credit line, where money goes in and out of one open facility, consider restructuring it so each drawdown is issued and tracked as its own term loan, inside an overall sanctioned limit. This is close to how supply-chain finance is already structured, with each tranche treated as a separate term loan. This approach gives you a paper trail that’s easy to defend, whether the final rule bans revolving credit outright or only restricts certain forms of it.
Build clear repayment schedules into every tranche
A defining feature of a term loan is a fixed repayment schedule. Vague or open-ended repayment terms are exactly what invites scrutiny. Build fixed tenors and fixed instalments into every credit line product, even if the underlying limit itself can be renewed periodically.
Separate “renewal” from “automatic redraw”
There’s a meaningful difference between a facility that renews after a formal review, and one where funds simply flow back the moment they’re repaid. The first looks like a series of term loans. The second looks like classic revolving credit. If your product currently allows instant, automatic redraw, consider adding a review step, even a light one, before the next tranche is released. This single change could move a product from one side of the line to the other.
Strengthen underwriting and monitoring for fast-growing products
This one isn’t about the definition debate at all. It’s about credibility. RBI has directly told NBFC executives it wants stronger internal audit, compliance, and risk-management systems, particularly for products seeing rapid growth. Whatever the final rule says about revolving credit, expect closer supervisory attention on flexi loans, working-capital lines, and anything growing quickly. Tightening this now is not wasted effort.
Get ahead on disclosure and borrower communication
FISME’s submission to the RBI captured a useful principle: regulate risk through underwriting, monitoring, disclosure, and data-governance requirements, rather than banning a product category outright. Even if the RBI doesn’t adopt this framing directly, building clearer disclosures around how limits, tenors, and renewals work protects NBFCs either way. It’s good practice, and it signals to the regulator that the lender is managing the product responsibly.
Map your book now, don’t wait for the final text
Before the rule lands, go through your product suite and tag each one: pure term loan, pure revolving credit, or hybrid. The hybrid bucket, cash-credit-style lines, flexi loans, and supply-chain finance, is where most of the redesign work will be needed. Knowing the size of that bucket today means you’re not scrambling once the rule is notified.
The Bigger Picture
This debate is really about two different views of the same risk. The RBI is worried about indefinite rollovers, hidden borrower stress, and opaque app-based lending. NBFCs, particularly those serving MSMEs, are worried about losing a product that genuinely serves working-capital needs, cheaply and flexibly.
Both concerns are legitimate. The final rule will likely try to thread that needle, probably landing somewhere between a full ban and the status quo, with carve-outs for products like supply-chain finance and tighter compliance requirements attached.
But regardless of where that line ends up, the direction is unmistakable. NBFCs offering anything that looks like an open-ended credit line should expect more structure, more documentation, and more oversight. Building that discipline now, tranche-by-tranche loan structures, clear tenors, stronger underwriting, isn’t just about surviving a rule change. It’s about running a cleaner, more defensible lending book either way.
The comment window has closed. The next move belongs to the RBI. But the NBFCs that come out ahead won’t be the ones who waited for the final text. They’ll be the ones who started redesigning the moment the draft made the risk clear.
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