Reserve Bank of India Proposes Ban on NBFC Revolving Credit

The Reserve Bank of India issued draft directions that would prohibit non-banking financial companies (NBFCs) from offering revolving credit facilities, unless the entity holds authorization to issue credit cards. Under the proposed framework, NBFCs must provide credit as term loans with pre-determined amortization schedules, and sanctioned limits cannot be replenished following principal repayments.

Morgan Stanley analyzed the proposal, stating that the curbs would likely impact flexi and overdraft loan products within the corporate, MSME, and unsecured personal loan segments. While NBFCs may argue these products reduce interest costs for borrowers, the brokerage suggests the industry can redesign loans to ensure compliance.

According to Morgan Stanley, the economic impact on individual firms would be mitigated if the regulations are applied uniformly across the industry to maintain a level playing field and if the norms apply only to new loans.