The Reserve Bank of India (RBI) proposed barring non-banks from issuing revolving credit facilities in a 6 August draft circular, prompting industry bodies to seek clarification. According to reports from Business Standard, the Finance Industry Development Council (FIDC) and representatives of NBFCs met RBI Deputy Governor S C Murmu on Thursday and shared their feedback. The body urged the regulator to rethink its decision on such a blanket ban, with sources indicating that initially the impact was seen to be limited to three or four NBFCs, but feedback has shown that a much larger section of the industry could be impacted. Around 30-40 lenders have submitted their responses to FIDC, with all suggestions to be consolidated and sent to RBI through the Confederation of Indian Industry (CII).
As reported by Business Standard, the industry seeks clarity on products allowing limited redraw and supply-chain finance, as well as whether recovery calls can be made through the mandated 1600-number series. An NBFC chief executive noted that NBFCs have argued that such facilities do not necessarily constitute the kind of revolving lending that the RBI seeks to restrict, explaining that there are products that technically may not fit neatly into the definition. Supply-chain finance is another area where NBFCs have sought exemption, with lenders stating that such financing is closely monitored through GST data and that loans are disbursed directly to suppliers rather than borrowers. The final guidelines on revolving credit could take another two months as RBI assesses feedback before deciding on the scope of restrictions.
According to Vivek Bimbrahw, former banker and consulting head-stakeholder relations at National Council of Applied Economic Research (NCAER), RBI's concerns stem from credit line-like products where borrowers under financial stress tend to withdraw more from sanctioned lines. As reported by Mint, industry bodies suggest implementing utilization pattern monitoring, mandatory re-underwriting on repeated drawdowns, reassessment of repayment capacity on persistent utilization, and supervisory testing of whether fresh drawings are servicing old obligations. Jatinder Handoo of UFF noted that the issue may be about visibility rather than quantum, suggesting transparency through blockchain and AI technologies. The FIDC warned that many small and medium NBFCs deal exclusively in such products, stating that consequent to such prohibition, the economic rationale for their continued existence shall be severely dented.
The ban proposal comes at a time when the government has been pushing for MSME lending and easier access to credit, creating industry confusion. According to Sundeep Mohindru, founder of M1xchange, banning products such as channel or dealer finance and invoice discounting could have a very large impact as MSMEs rely heavily on them for supply-chain management. The industry argues that restricting access will push customers towards informal credit or term loans, which will only increase leverage. NBFCs typically serve borrowers who don't meet banks' credit filters, with customers losing access to revolving credit if it's removed from NBFCs. The RBI's proposal is aimed at ensuring repayment discipline and addressing concerns around borrower creditworthiness and loan evergreening, but NBFCs have said a broad definition could capture legitimate lending products.
