What is proposed
On 6 August 2026, the Reserve Bank placed for public comment a short but structurally significant amendment to the RBI (NBFC – Credit Facilities) Directions, 2025 (dated 28 November 2025), issued under Chapter III B of the RBI Act, 1934. Four changes are proposed:
- New definitions inserted in paragraph 4(1). A “term loan” [clause (xxv-b)] is a fund-based facility of a fixed principal amount where (a) the sanctioned limit is disbursed in one or more instalments and is repayable per a predetermined amortisation schedule, whether by periodic instalments or as a bullet on stated due date(s); and (b) once disbursed, the sanctioned limit cannot be restored or replenished on repayment of the whole or part of the principal. “Revolving credit” [clause (xxv-a)] is defined residually — any fund-based facility that fails this test.
- Paragraph 5(5) deleted — “Demand / Call Loans” is removed from the list of areas requiring a Board-approved credit policy.
- Chapter VIII, Part D (paragraph 107) deleted — the entire conduct framework for demand / call loans (cut-off dates, review within six months, reasons in writing for nil interest or moratorium, restrictions on renewal) goes.
- New Part F, paragraph 108A inserted — an NBFC shall only offer credit products in the nature of term loans and shall not offer any revolving credit product. The sole carve-out is for an NBFC authorised by the Reserve Bank to issue credit cards — presently a very small universe (SBI Cards and BoB Financial).
The draft states the amendments will come into force immediately on notification. As drafted, there is no transition window and no grandfathering of existing sanctions.
Which products are actually caught
The residual definition does the heavy lifting: the test is not what the product is called, but whether the limit replenishes on repayment.
| Product / facility | Likely status under the draft |
| Flexi / hybrid loans — sanctioned limit with unlimited drawdown, repayment and redraw, interest charged only on the utilised balance | Barred. Replenishment of the limit is the defining feature |
| Overdraft against property, deposits, securities or gold | Barred |
| Cash credit and running working capital limits to MSMEs | Barred |
| Digital credit lines and app-based “credit limits”, BNPL revolving lines, consumer-durable / EMI cards sourced through LSP and co-lending arrangements | Barred |
| Dealer, channel and vendor finance on revolving limits; revolving invoice discounting limits | Barred unless restructured as discrete, non-replenishing drawals |
| Home loan overdraft (“maxgain”-style) and top-up by redraw structures | Barred |
| Demand / call loans, including inter-corporate demand loans | No longer contemplated — the enabling framework is deleted |
| Instalment loans, bullet repayment loans, tranched project and construction finance, fixed-tenor working capital demand loans with no replenishment | Permitted |
| Non-fund based facilities — guarantees, letters of credit, partial credit enhancement | Outside scope. The definitions are expressly limited to fund based facilities |
Business impact
Revenue and product mix. For retail-and-MSME NBFCs and fintech-partnered lenders, flexi and credit-line products carry higher engagement, repeat utilisation and fee income (limit set-up, annual maintenance, unutilised-limit charges). Converting them into closed-ended term loans means re-underwriting at every fresh requirement, higher customer acquisition cost per rupee disbursed, and loss of the “always-on limit” proposition to banks — which face no equivalent restriction. The regulatory arbitrage runs against NBFCs.
Balance sheet and ALM. The flip side is favourable: term loans give contractual, predictable cash flows, cleaner behavioural bucketing under the ALM Directions, better securitisation and direct assignment eligibility, and remove the undrawn-commitment overhang that revolving limits impose on liquidity and capital planning. The Reserve Bank’s likely concerns — evergreening through redraw, obscured delinquency and unpriced undrawn exposure — are precisely what paragraph 108A addresses.
Systems, contracts and disclosure. Affected NBFCs will need LOS / LMS reconfiguration, revised sanction letters and loan agreements, fresh Key Fact Statements and APR computation under the Responsible Business Conduct Directions, 2025, re-mapping of “credit type” in CIC reporting, and a revised Board-approved credit policy (paragraph 5 will no longer require a demand / call loan policy). Co-lending and DLG arrangements built around credit lines will need renegotiation, as will LSP agreements under the outsourcing framework.
The unanswered questions — worth raising before 28 August. Does the draft apply prospectively only, or must live revolving limits be run down, and over what period? Are structured revolving trade finance and supply chain limits to institutional borrowers, where the mischief of retail evergreening is absent, intended to be caught? Is a term loan with a contractual redraw of prepaid principal (not restoration of limit) permissible? And does paragraph 34(5) of the Responsible Business Conduct Directions — which expressly contemplates pre-payment charges on cash credit / overdraft facilities — survive as a dead letter?
Takeaway
This is a two-paragraph amendment with portfolio-level consequences. NBFCs with material flexi, overdraft or credit-line books should quantify the affected AUM now, model the revenue and ALM impact of a term-loan-only architecture, and file a reasoned representation seeking a transition period and a carve-out for non-retail revolving facilities. The comment window closes on 28 August 2026.
Draft RBI (Non-Banking Financial Companies – Credit Facilities) Amendment Directions, 2026 |Comments open till 28 August 2026
