What is the RBI's Proposal?
In early August 2026, the RBI released draft amendments proposing to restrict NBFCs from offering revolving credit facilities. Essentially, it wants NBFCs to primarily provide loans in the form of standard 'term loans'. A term loan has a fixed amount,
a set repayment schedule, and a clear end date. The new rule would apply to a wide range of popular products often called 'flexi loans' or overdraft facilities that are offered across personal, MSME, and corporate loan segments. The only exception would be for the handful of NBFCs that are specifically authorised by the RBI to issue credit cards, as revolving credit is a fundamental feature of those products.
The Crux of the Issue: No More Automatic Top-Ups
The most significant change for borrowers lies in how repayments are treated. Currently, with a flexi loan, if you have a credit limit of ₹5 lakh and repay ₹1 lakh, your available limit is often restored, allowing you to borrow that ₹1 lakh again later without a new application. The RBI's proposal would end this. The draft norms state that once a part of the principal is repaid, the sanctioned limit cannot be restored or replenished. If you need additional funds, even after clearing part of your debt, the lender may have to conduct a fresh assessment and make a new disbursal. This seemingly small change fundamentally alters the flexible nature of these credit lines.
Why is the RBI Making This Change?
The regulator's primary concern appears to be financial stability and curbing risky lending practices. Analysts suggest the move is aimed at reducing the risk of 'evergreening', where fresh drawdowns from a revolving facility might be used to service existing debt rather than being funded by genuine cash flows. By pushing NBFCs towards more structured term loans, the RBI can better track repayment behaviour and the underlying health of the loan book. The proposal aims to create a clearer distinction between standard loans and revolving credit, strengthening regulatory oversight over the rapidly growing personal loan sector.
The Borrower's Dilemma: Convenience vs. Control
For customers, the biggest loss is convenience. Flexi loans are popular because they offer a readily available line of credit for emergencies or fluctuating business needs. The ability to draw, repay, and redraw funds is a key selling point. Under the new proposal, borrowing becomes less convenient. A customer needing funds repeatedly would face the friction of a new loan process each time, which could discourage borrowing or push them to seek less formal credit sources. Analysts note this could force customers to borrow larger sums upfront in a term loan and park the unused funds in a low-interest account, increasing their overall borrowing cost.
How Are NBFCs Reacting?
The proposal has rattled the market, with shares of major NBFCs like Bajaj Finance seeing a significant drop after the announcement. Lenders with a high exposure to flexi-loan products are seen as the most vulnerable. These products are attractive for NBFCs because they improve customer stickiness and support loan book growth, as the ability to redraw slows down the rate at which the book runs off. While NBFCs are expected to represent their case to the RBI, many are also likely exploring ways to redesign their products to be compliant while retaining their customer base. The central bank has invited comments from stakeholders until August 28, 2026, before finalising the guidelines.
