MUMBAI — The Reserve Bank of India (RBI) has proposed a sweeping overhaul of credit facility norms for non-banking financial companies (NBFCs), mandating a shift to term-loan structures while prohibiting most forms of revolving credit and removing provisions governing demand or call loans, according to Business Today.
Under the draft directions issued by the central bank, NBFCs will be barred from offering revolving credit products and will be required to offer only credit facilities in the nature of term loans, Business Today reported. The restriction will not apply to NBFCs that have been explicitly authorised by RBI to issue credit cards.
Scope of the proposed restrictions
The draft directions, reported by Business Today, remove the regulatory framework for demand and call loans by deleting the section in RBI guidelines to NBFCs that deals with demand loans. The requirement that NBFCs maintain a board-approved policy for such loans has also been withdrawn.
Key provisions of the proposed draft:
- NBFCs are barred from offering revolving credit products.
- All credit facilities must be structured as term loans.
- NBFCs explicitly authorised by RBI to issue credit cards are exempt.
- The demand loan section of RBI guidelines to NBFCs is deleted.
- The board-approved policy requirement for demand and call loans is withdrawn.
- Once a term loan is repaid, partially or fully, the sanctioned limit cannot be restored or replenished.
Definition of a term loan under the draft
The amendments introduce formal definitions to distinguish permissible and non-permissible credit facilities, according to Business Today. A term loan has been defined as a fund-based credit facility with a fixed principal amount disbursed in one or more instalments, and repayable according to a predetermined amortisation schedule, either through periodic instalments or a bullet payment at maturity.
A term loan is a fund-based credit facility with a fixed principal amount disbursed in one or more instalments, repayable according to a predetermined amortisation schedule, either through periodic instalments or a bullet payment at maturity.
The draft clarifies that once repaid, whether partially or fully, the sanctioned limit cannot be restored or replenished.
Summary of key changes
| Provision | Stance under RBI draft directions |
|---|---|
| Revolving credit products | Barred for NBFCs |
| Permitted credit facilities | Only term loans, as defined in the draft |
| Credit card NBFCs | Exempt, if explicitly authorised by RBI to issue credit cards |
| Demand and call loans | Regulatory framework removed; governing section deleted |
| Board-approved policy for demand/call loans | Requirement withdrawn |
| Repaid term loan limits | Cannot be restored or replenished |
Source: Business Today report on RBI draft directions.
Demand and call loan framework removal
By deleting the section in RBI guidelines to NBFCs that deals with demand loans, the central bank removes the regulatory underpinning for demand and call loans, according to Business Today. The withdrawal of the board-approved policy requirement for such loans is part of the same overhaul.
The draft directions, reported by Business Today, represent the central bank's proposed framework for NBFC credit facilities. The proposal would bar NBFCs from offering revolving credit products, require term-loan structures only, remove the demand and call loan framework, and clarify that a term loan's sanctioned limit cannot be restored or replenished once repaid, whether partially or fully.
Sources:
