RBI draft to put a stop to revolving credit facilities by NBFCs

Research evidence excerpt

Not for redistribution without written consent of Morgan Stanley

M

Update

August 6, 2026 05:21 PM GMT

India Financials | Asia Pacific

Morgan Stanley India Company Private Limited+

Subramanian Iyer

Equity Analyst

RBI draft to put a stop to

revolving credit facilities by

NBFCs

Kushan Parikh, CFA

Equity Analyst

Sakshi V Chaplot

Research Associate

Key Takeaways

RBI's draft paper on NBFC credit facilities restricts NBFCs from offering revolving

credit products, except for those NBFCs authorized to issue credit cards.

Revolving credit is defined as one which is not a term loan. A term loan should

India Financials

Asia Pacific

Industry View

Attractive

have a pre-determined amortization schedule (periodic or bullet repayments).

Once disbursed, the sanctioned limit cannot be restored / replenished upon

repayment of either the whole or a part of the principal amount.

We think flexi and overdraft loans by NBFCs operating in corporate, MSME and

unsecured personal loan segments, are likely to be impacted.

While NBFCs could represent to RBI, we think they could work to redesign such

loans to be compliant while retaining product economics and customer offerings.

Link to RBI draft. We will watch out for comments from companies and the final

guidelines.

Additional points:

• We think NBFCs are likely to represent to RBI that these products give

significant flexibility to the borrower and minimize overall customer interest

outgo.

• Term loans will require customers to borrow additional funds in advance and

park them in a bank savings / current account (i.e. significant negative carry)

until the point of utilization, thereby increasing overall interest outgo.

• If implemented consistently as an industry-wide measure maintaining a level

playing field, this is less likely to cause disproportionate loss of business or

economics at an individual NBFC.

• Further, assuming this gets applied to fresh loans to customers and existing

facilities get grandfathered, that could mitigate the impact, if any,

substantially.

• We think diversified NBFCs are positioned better to mitigate the impact due

to their ability to offer substitute products to customers (like gold loans,

…