India's NBFC body asks RBI to ease restrictions on revolving credit

Business Recorder reported, citing Reuters, that India's NBFC industry body has asked the RBI to rethink its draft plan to bar NBFCs from offering revolving credit. The Finance Industry Development Council, which represents the sector, sent the letter on Thursday, arguing that a blanket ban would cut NBFC participation in trade and working-capital lending. It warned that the effect would be a significant reduction in lending to MSMEs and borrowers with limited access to bank working-capital lines.

The RBI had earlier proposed barring NBFCs from revolving loan products unless they hold authority to issue cards, with draft guidelines limiting them to term loans. Such a facility lets a borrower take money out, pay it back and borrow again up to an agreed ceiling, and small firms often rely on it to buy inputs before customers pay them. The central bank had voiced concern that such high-risk products could allow borrowers to repay existing dues and fall into a cycle of debt.

The FIDC also wants the RBI to revisit the term loan definition, which requires a sanctioned limit to be restored after principal repayment, arguing that this would raise interest costs and operating expenses for small businesses. It has proposed allowing principal repaid ahead of schedule to be restored or replenished, subject to safeguards.