RBI's Proposal for NBFCs on Revolving Credit Facilities
The Reserve Bank of India (RBI) has put forth a proposal impacting non-banking financial companies (NBFCs) concerning the offering of revolving credit facilities.
Key Proposals
- NBFCs should refrain from offering revolving credit facilities such as credit cards.
- NBFCs may continue to provide term loans.
- The proposal is aimed at aligning NBFC offerings with prudential norms in the financial ecosystem.
Revolving Credit Facilities Defined
Revolving credit refers to a credit facility where lenders provide a credit limit, allowing customers to borrow, repay, and borrow again within this set limit. Examples include:
- Bank overdraft accounts
- Business working-capital lines
- Credit cards
Exceptions and Regulations
- The restriction does not apply to NBFCs authorized to issue credit cards, like SBI Cards & Payment Services.
- Standalone NBFCs require prior regulatory approval and a minimum net owned fund of ₹100 crore to issue credit cards independently.
- Some NBFCs may offer co-branded credit cards in partnership with banks.
Term Loan Characteristics
A term loan is a credit facility with a fixed principal amount:
- Disbursed in one or more instalments.
- Repayable through periodic instalments or as a bullet payment on a due date.
- Once disbursed, the limit cannot be reinstated or replenished upon principal repayment.
The RBI has invited comments from stakeholders on the draft circular regarding these changes.
