A Reserve Bank of India (RBI) proposal to bar non-bank financiers from issuing revolving credit products has investors running for cover, with shares of Bajaj Finance Ltd tanking nearly 6% on Friday.
The banking regulator on Thursday proposed that non-banking financial companies (NBFCs) be allowed to offer only term loans unless they hold a licence to issue credit cards. Under the November 2025 norms, NBFCs require RBI approval and a minimum net owned fund of ₹100 crore to issue credit cards.
RBI defines revolving credit as a credit facility that does not meet the definition of a term loan. A term loan, according to the central bank, refers to credit with a fixed principal amount, disbursed in one or more instalments and to be repaid on a predecided schedule. That apart, once disbursed, a term loan limit cannot be replenished after repayment of the whole or a part of the principal.
SBI Cards and Payment Services Ltd, the credit card arm of India's largest lender, State Bank of India, and BOBCARD, a subsidiary of Bank of Baroda, are the only two non-bank credit card issuers in India.
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However, many other NBFCs offer revolving credit, and the quantum is unknown, as they don’t disclose the assets under management (AUM) for that line of business, said Suresh Ganapathy, managing director and head of financial services at global adviser and investor Macquarie Capital.
“At one point in time, Bajaj Finance had quantified that the flexi loan AUM was 30% of overall AUM. This was 6 years ago…Numbers now in our view could be lower in percentage terms,” said Ganapathy.
He said the question is whether even supply chain and inventory funding would qualify as revolving credit.
“NBFCs can replace this with a term loan, but the nature of certain kinds of customers is to revolve due to their cash flows being unpredictable or for some other reasons… For example, even today, credit card companies in India have customers to the extent of 20% of their loan book who are happy paying 40% interest rate and revolving," said Ganapathy.
The concerns are not limited to Bajaj Finance. According to estimates by Viral Shah, senior vice-president, equity research, at broking house IIFL Capital Services, such loans account for about 20% of Bajaj Finance's standalone AUM. The share is estimated to be in the high single digits to low double digits for Tata Capital and less than 1% for Cholamandalam Investment and Finance Co.
Shares of Tata Capital were down 3.2%, while those of Cholamandalam Investment were down 3.8% on the NSE.
“In our assessment, this is a feature that is prevalent across product lines for many NBFCs. This can impact new customer acquisition, growth, and stickiness, especially for NBFCs that have a meaningfully higher exposure to products having this feature,” said Shah.
Shah added that fee income and yields could also be impacted for lenders with meaningful exposure, since these products carry higher fees than other products. However, this can potentially be offset by imposing prepayment charges, which are otherwise typically not charged on loans with this feature.
Queries emailed to Bajaj Finance, Tata Capital and Cholamandalam Investment on Friday evening were not immediately answered.
Asset-quality risk
Others see a potential risk to asset quality if such revolving credit products are suddenly withdrawn.
Analysts at Sanford C. Bernstein (India) said flexi-loan structures allow customers to draw, repay and redraw funds from a pre-approved credit limit without undergoing fresh underwriting for every utilization. These products offer considerable repayment flexibility, including, in some cases, the ability to service only interest obligations for extended periods before principal repayment.
“While attractive from a customer perspective, they also increase the risk of borrowers relying on incremental borrowing capacity to manage existing obligations,” Bernstein said in a note on Thursday.
Bernstein analysts said the primary risk is asset quality rather than growth. That is because revolving credit is a higher-risk product that requires sophisticated underwriting, monitoring and collection capabilities.
“While lenders such as Bajaj Finance may possess the systems needed to manage these portfolios, the same may not hold true across the broader industry. The withdrawal of revolving facilities could expose pockets of borrower stress that have so far remained masked by easy access to additional (and flexible) liquidity, resulting in a broader deterioration in repayment behaviour,” the note said.