The Reserve Bank of India’s proposal to restrict non-banking finance companies (NBFCs) from offering revolving credit facilities could compel them to redesign offerings. The norms could impact products such as flexi loans and overdraft facilities, and according to analysts, the maintenance-fee income associated with these facilities.
Analyst Viral Shah said in a note that the proposal, if implemented, can impact new customer acquisition, growth and stickiness for NBFCs that provide revolving facilities. Fees, Shah wrote, could also be impacted since such credit products fetch higher fees or yields compared to other simpler products. He said lenders could potentially offset the loss of fee income by levying prepayment charges.
A revolving credit facility is a flexible loan that allows one to draw funds up to an approved limit, repay them, and then re-borrow as needed, with the limit replenishing each time one makes a repayment.
The RBI on Thursday proposed barring NBFCs from offering revolving credit products. However, these directions are not applicable to an NBFC authorised by the RBI to issue credit cards.
Asset-Liability Mismatch
“Revolving credit facilities are less suited to NBFCs, unlike banks, which have short-term liquidity due to CASA deposits. NBFCs’ asset–liability management frameworks are therefore structured differently and may not support such products. In addition, revolving credit facilities may create an ever-greening risk,” said an NBFC executive.
Bajaj Finance is estimated to have revolving-credit exposure equivalent to around 15% of its AUM, according to IIFL estimates.
Macquarie Capital said in a note Bajaj Finance may need to reduce its flexi loan portfolio, adding that any cut by the company in its FY27 growth guidance of 22–24% would be viewed negatively.
Tata Capital’s exposure is in the high single-digit to low double-digit range, according to IIFL.
Shares of NBFCs lost value on Friday. Bajaj Finance was the most hit with its stock falling over 5%. Among other lenders, Tata Capital fell 3.5%, L&T Finance lost 3% while Poonawalla Fincorp closed 2.2% lower. The Nifty Financial Services index was down by 1.48%.
An analyst with a rating agency noted that NBFCs are generally not permitted to offer revolving credit facilities such as cash credit. However, there are some grey areas, which allowed some of them to offer products such as salary overdrafts and flexi loans. “These products may need to be replaced,” he said.
Lenders are also awaiting clarity on whether supply-chain and inventory financing will also be classified as revolving credit. Experts said supply chain financing by NBFCs may get affected. “Under supply-chain financing arrangements, NBFCs would typically sanction a limit against which borrowers could submit invoices at different points in time, with the NBFC funding them on a continuing basis. Now, each invoice may have to be treated as a separate loan,” an industry executive said.