RBI Allows Revolving Credit Facility for NBFCs, Governor Sanjay Malhotra Clarifies — October 7, 2026

In a significant relief to India's non-banking financial companies (NBFCs) and fintech lenders, Reserve Bank of India (RBI) Governor Sanjay Malhotra confirmed that NBFCs can continue to provide revolving credit facilities, calming weeks of regulatory anxiety across the shadow-banking industry. The clarification, announced alongside the Monetary Policy Committee (MPC) review, signals that the central bank will adopt a balanced, risk-calibrated approach rather than enforcing a blanket prohibition on flexible borrowing products.

The development follows weeks of intense lobbying and representations from industry bodies, including the Finance Industry Development Council (FIDC) and the Federation of Indian Micro and Small and Medium Enterprises (FISME), alongside major non-bank financiers such as Bajaj Finance, Tata Capital, Piramal Finance, and Shriram Finance.

The Regulatory Backdrop

The regulatory dispute began on August 6, 2026, when the RBI issued draft amendments to the Non-Banking Financial Companies – Credit Facilities Directions. The draft proposed that NBFCs would only be permitted to offer credit facilities in the nature of fixed term loans with predetermined amortisation schedules, where sanctioned limits could not be replenished or redrawn upon repayment.

Under that proposal, revolving credit facilities were to be restricted strictly to entities specifically authorised by the RBI to issue credit cards, such as SBI Cards and BoB Cards. The RBI's supervisory concern centered around potential "evergreening" of loans, where borrowers could draw repeatedly against an open credit line to service existing dues, obscuring underlying stress and over-leveraging retail and small business borrowers.

Following the circular, Governor Sanjay Malhotra had initially indicated that open-ended revolving credit was not part of the original regulatory framework for shadow lenders, triggering sharp market sell-offs across NBFC equities.

Industry Pushback and Economic Stakes

The shadow-banking industry warned that an outright ban would cause widespread disruption across more than ₹2.5 lakh crore in active credit products.

Key Segments Threatened by the Restriction:

• MSME Working Capital: Small enterprises routinely rely on flexible credit lines and overdraft limits to manage cash flow cycles between inventory purchases and invoice receipts.
• Supply Chain and Dealer Financing: Auto and retail inventory financing depends on drawdowns and repayments tied directly to stock turnover.
• Flexi-Loans and Personal Credit Lines: Top-tier retail NBFCs use amortising flexi-loans that allow borrowers to withdraw and repay as liquidity permits, minimizing net interest costs without prepayment penalties.

Industry representatives argued before senior RBI officials, including Deputy Governor Shirish Chandra Murmu, that forcing all credit into rigid term loans would saddle borrowers with unnecessary borrowing costs and create significant negative carry. Lenders also pointed out that modern digital underwriting and the Account Aggregator network now allow real-time monitoring of borrower cash flows, eliminating the informational opacity that previously worried regulators.

Market Impact and Relief for Lenders

Governor Malhotra's confirmation that revolving credit facilities remain accessible through NBFCs clears the policy overhang that had weighed on shadow-banking shares. Instead of a total restriction, the central bank is expected to notify structural safeguards—such as amortisation milestones, delinquency cutoffs, and stringent underwriting standards—ensuring systemic stability without choking productive credit delivery.

For retail borrowers, small businesses, and listed financial institutions, the RBI's willingness to integrate stakeholder feedback preserves critical liquidity pipelines and sustains credit growth across semi-urban and underserved segments of the Indian economy.

Tags: RBI Sanjay Malhotra NBFC Bajaj Finance FIDC Banking Sector