NBFCs redesign lending models ahead of revolving credit curbs

NBFCs Rework Loan Products Before RBI Curbs

Non-banking financial companies are redesigning their lending offerings in anticipation of fresh Reserve Bank of India norms that would restrict revolving credit facilities. According to a report in the Economic Times, the upcoming guidelines are expected to place limits on such facilities, pushing NBFCs to shift towards term loan structures. Bajaj Finance has already started rolling out new variants of term loans. Tata Capital is in the process of testing revised flexi-loan products. Several other NBFCs are also examining their current exposure to revolving credit while the final shape of the regulations is still awaited.

Why This Matters For Lenders

Revolving credit facilities allow borrowers to draw funds, repay them and draw again within a sanctioned limit, with interest typically charged on the amount used. Term loans, by contrast, follow a fixed repayment schedule with defined tenures. For NBFCs, a regulatory cap on revolving credit would mean reworking product design, repayment cycles and interest computation methods. It would also affect how income is recognised on such books and how loan documentation is drafted. Entities with a large share of revolving credit in their portfolios may need to reassess customer agreements, internal credit policies and reporting formats. The shift could influence borrowing costs for customers as well, since term loans and revolving limits carry different risk and pricing profiles.

What To Watch Next

The key trigger remains the final RBI guidelines, which will determine the exact scope and extent of the restrictions. Until then, market participants will be watching how quickly NBFCs migrate existing customers to the new structures and whether transitional arrangements are permitted. Also relevant is how flexi-loan products are treated under the eventual framework, given that some already blend term and revolving features. Compliance teams should track the draft and final circular…