The End of Revolving Credit?
The Reserve Bank of India (RBI) released a draft proposal in early August 2026 that has sent ripples through the financial sector. It suggests that Non-Banking Financial Companies (NBFCs) should be restricted to offering only fixed-term loans. This would
mean an end to 'revolving credit' facilities from most NBFCs. These are the flexible credit lines—often marketed as flexi-loans, personal credit lines, or used to power some Buy Now, Pay Later (BNPL) services—that allow you to borrow, repay, and borrow again from the same sanctioned limit. The only exception to this proposed ban would be for NBFCs specifically authorised by the RBI to issue credit cards, a category that currently includes only a handful of players like SBI Card and BoB Cards.
Term Loan vs. Revolving Credit Explained
To understand the gravity of this change, it's essential to know the difference between the two types of credit. A revolving credit facility is like a flexible pool of money. If you have a limit of ₹1 lakh, you can use ₹30,000, repay ₹10,000, and your available limit is restored to ₹80,000 for you to use again. This is how credit cards and many popular flexi-loans work. The RBI's draft proposal pushes NBFCs towards a 'term loan' model. A term loan is a fixed amount of money borrowed for a specific period with a set repayment schedule. Crucially, the draft states that once any part of the principal is repaid, the credit limit is not restored or replenished. If you repay ₹10,000 of your loan, you cannot borrow that ₹10,000 again from the same facility.
What This Means for You, the Borrower
For millions of Indians who rely on the flexibility of NBFC-offered credit lines for managing cash flow or making purchases, the impact could be significant. The primary advantage of a revolving line of credit—its convenience and on-demand availability—would disappear from most NBFC products. Instead of simply drawing down from an existing, pre-approved limit when you need funds, you might have to apply for a new term loan each time. This introduces more friction into the borrowing process. While this move aims to increase transparency and protect consumers from potential debt traps associated with easy, continuous credit, it undoubtedly reduces the flexibility that made these products popular in the first place.
A Shake-Up for Lenders
The proposed rules represent a major operational overhaul for many NBFCs and the fintech platforms they partner with. Companies that have built their business models on offering popular flexi-loan products, like Bajaj Finance, felt the immediate impact, with their stock prices declining after the announcement. These revolving credit products have been powerful tools for customer acquisition and building long-term relationships. Lenders will now have to redesign their offerings to comply with the term-loan structure, which could affect their loan growth and profitability. According to analysts, these changes could also impact fee income that NBFCs earn from annual maintenance charges on these credit lines.
The Rationale Behind RBI's Move
This isn't a sudden move. For the past couple of years, the RBI has been signaling its preference for NBFCs to move away from revolving credit. The primary goal is to enhance consumer protection and reduce systemic risk. Regulators are concerned that easy, continuous credit can sometimes lead to borrowers 'evergreening' their loans—servicing old debt with new drawdowns rather than from actual income, masking financial distress. Furthermore, the move helps create a clearer distinction between the roles of banks, which are primarily set up to handle working capital and revolving credit, and NBFCs. By defining credit products more strictly, the RBI aims to create a more stable and transparent lending ecosystem.
What Happens Next?
It is important to remember that these are currently draft proposals. The RBI has invited feedback from stakeholders, including NBFCs and the public, until August 28, 2026. It is likely that the industry will make representations, possibly arguing for existing loans to be 'grandfathered' (allowed to continue under old rules) or for a more nuanced approach. However, the direction from the central bank is clear. Consumers who use NBFC credit lines should watch for the final guidelines to understand how their financial tools might change in the near future and plan accordingly.
