The Reserve Bank of India (RBI) on Thursday proposed banning non-banking finance companies (NBFCs) from offering revolving credit products.
“NBFC shall only offer credit products which are in nature of term loans and shall not offer any revolving credit products,” the RBI said in the release.
A revolving credit facility is a flexible loan that allows you to draw funds up to an approved limit, repay them, and then re-borrow as needed, with the limit replenishing each time you make a repayment. This may include loans such as working capital or cash credit limits.
The RBI defines revolving credit as any fund based credit facility, which does not meet the definition of a term loan. A loan is considered as term loan if the sanctioned limit is disbursed in one or more instalments and must be repaid as per a fixed amortisation plan—either through regular instalments or a single lump-sum payment on the maturity date.
Once disbursed, the sanctioned limit cannot be restored / replenished upon repayment of either the whole or a part of the principal amount, the RBI said.
However, these directions are not applicable to an NBFC authorised by the RBI to issue credit cards, the regulator said.
Stakeholders can submit their feedback on draft amendments by August 28.