The RBI has proposed banning most non-banking financial companies (NBFCs) from offering revolving credit lines. This regulation effectively reserves "credit card without a card" products for banks, despite large non-banks managing these risks for years. The rule impacts major players like Bajaj Finance and Tata Capital, who rely on these flexible credit lines.
How We Got Here
On August 6, the RBI released draft directions, stating NBFCs must offer only term loans, not revolving credit. This follows a 2023 move where the RBI first allowed banks to offer pre-sanctioned credit lines on UPI, extending it to small finance banks in 2025.
The Numbers
- The RBI's draft directions specify NBFCs must offer only term loans, with an exception only for NBFCs authorized to issue credit cards.
- Revolving credit allows borrowing, repayment, and immediate re-borrowing from the same limit, unlike term loans which require a new application.
- Bajaj Finance's "flexi-loans" and Tata Capital's "business lines of credit" currently use this prohibited structure.
- The proposed rules would also block non-banks from offering such credit via UPI, which onboarded over 55.49 crore users by June 2026.
- Public comments on the draft directions are open until August 28.
What Happens Next
🇮🇳 Why This Matters for India
For small business owners in non-metro cities like Lucknow or Jaipur, losing access to NBFC-offered revolving credit could shrink their regulated borrowing options for working capital.
The Take
This looks like a blunt instrument approach from the RBI, painting all NBFCs with the same brush regardless of their risk capabilities. The real casualty will be product innovation for the mass market, pushing them back to traditional banks or even unregulated channels.
Source:
The Ken ↗