The Finance Industry Development Council (FIDC), an industry body representing non-banking financial companies, has joined the Federation of Indian Micro and Small and Medium Enterprises (FISME) in urging the Reserve Bank of India (RBI) to reconsider its proposal to bar NBFCs from offering revolving credit, warning that a blanket ban could disrupt working-capital finance for MSMEs. According to reports from The Economic Times, The Hindu BusinessLine, Business Standard, Rediff Money, and CNBC TV18, FIDC submitted its feedback on August 27, 2026, flagging concerns on the 'Draft Reserve Bank of India (Non-Banking Financial Companies - Credit Facilities) Amendment Directions, 2026' issued earlier this month. The industry body cautioned that the proposed measure, though intended to curb opaque lending and evergreening, could unintentionally disrupt legitimate working-capital finance used by MSMEs. FIDC emphasized that "a substantial amount of credit outstanding could potentially be affected if the draft is implemented in its current form," as reported by CNBC TV18. FIDC Secretary General acknowledged the RBI's concerns regarding indefinite rollovers, hidden borrower stress and harmful app-based lending, stating that working capital for productive enterprises is economically different from consumer revolving credit. He emphasized that regulation should target the risk and conduct of a product, not eliminate a legitimate financing instrument merely because it is revolving.
In the draft, the RBI has proposed that NBFCs shall only offer credit products which are in nature of term loans and shall not offer any revolving credit products. As reported by The Economic Times, The Hindu BusinessLine, Business Standard, Rediff Money, and CNBC TV18, the central bank has sought stakeholders' feedback on the draft till August 28, 2026. The RBI's draft specifically defines revolving credit as any fund-based credit facility that does not meet the definition of a term loan, with a term loan requiring a fixed principal amount, predetermined amortisation schedule and no restoration or replenishment of the sanctioned limit once principal is repaid. The draft states that "NBFCs shall only offer credit products which are like term loans and shall not offer any revolving credit products," with an exception for NBFCs authorised by RBI to issue credit cards. FIDC noted that several products offered by NBFCs may not strictly fit the proposed definition of a term loan but also do not function like credit cards or bank overdrafts, including supply chain finance, working capital demand loans, secured and unsecured MSME loans, vehicle dealer loans, loans against securities, personal loans and products offered by fintech-focused NBFCs. The industry body warned that "a substantial amount of credit outstanding could potentially be affected if the draft is implemented in its current form."
According to Ranen Banerjee, Partner and Leader, Economic Advisory, PwC India, as reported by The Economic Times, The Hindu BusinessLine, Business Standard, Rediff Money, and CNBC TV18, revolving credit is a key funding channel for MSMEs due to its key feature of restoration of credit limit once the amount disbursed within the credit limit was repaid. Shrikant Goyal, Managing Director, Getfive Funds, explained that MSMEs can repay any time and do not need to apply for fresh loans as is the case in term loans. The MSME sector collectively contributes 31 per cent of GDP, accounts for approximately 35 per cent of manufacturing output, and represents close to half of India's merchandise exports. A typical micro and small enterprise often operates with thinner liquidity buffers, and the biggest challenge these enterprises confront is timely payment, making flexi or revolving credit extremely helpful when manufacturers sell products today but receive payments after several weeks. As Goyal noted, banning revolving credit may impact the liquidity and cash flow of MSME companies in the short run, though it may prompt MSMEs to manage their cash flow and expenses in an orderly and structured manner in the long run. FIDC warned that "the proposed restriction could reduce flexibility for borrowers whose funding requirements fluctuate through the business cycle."
FIDC has proposed a targeted regulatory approach that distinguishes between legitimate working capital needs and problematic practices. As reported by CNBC TV18, the industry body asked RBI to "distinguish between restoration of repaid principal within an originally sanctioned facility and practices such as rollover, renewal or evergreening." FIDC has proposed allowing limited redraws where the facility has a fixed sanctioned amount, predetermined amortisation schedule and fixed final maturity, subject to safeguards such as "restoration/replenishment may be permitted to the extent of principal repaid in excess of the principal contractually due under the predetermined amortisation schedule." The proposed provision would ensure that such redraws do not increase the original sanctioned amount, extend the original final maturity or operate when any amount under the facility is overdue. FIDC warned that "if borrowers have to obtain full-term loans in advance to meet uncertain working capital requirements, they could end up carrying unnecessary interest costs." The industry body also flagged higher documentation, turnaround time, stamp duty and administrative costs if borrowers have to take multiple term loans to meet recurring working capital requirements. FIDC emphasized that "restricting legitimate revolving working-capital products could push vulnerable businesses towards more expensive and less regulated forms of credit, undermining the objective of promoting formal financial inclusion."
FIDC has made a specific case for supply chain finance, arguing that such facilities should not be treated as revolving credit. As reported by CNBC TV18, these facilities typically involve a master exposure limit but individual, transaction-specific short-term loans tied to a procurement, invoice or identified supply-chain transaction. Each loan has its own maturity and is extinguished upon repayment, with fresh checks conducted for subsequent drawdowns. FIDC warned that "restrictions could affect NBFC factoring activity on the Trade Receivables Discounting System (TReDS), which provides financing to MSMEs against receivables." The industry body noted that "upon prohibition of this facility, NBFCs would not be able to carry out factoring services on platforms such as TReDS to the detriment of MSMEs and others who get access to funds at very competitive rates." FIDC has also sought continued permission for NBFCs to offer loan against securities facilities, subject to prudential safeguards, with fixed sanctioned ceiling and fixed contractual maturity subject to applicable loan-to-value and margin requirements, mark-to-market monitoring and suspension of further drawdowns in case of margin shortfall or overdue amount. FIDC has separately sought clarity on supply chain finance and loans against securities, saying these products have specific structures and safeguards.
