# NBFCs Redesign Loan Products Amid RBI Revolving Credit Restrictions Major lenders pivot to term loan structures to maintain MSME credit access. - **Source:** [mint - industry](https://www.livemint.com/rss/industry) - **Published:** 2026-11-04 - **Topic:** [Finance](https://brifing.si/c/finance) - **Original article:** - **On Brifing:** https://brifing.si/s/274a5421-e757-4def-9ff1-596badacd34d ## Regulatory Shift in Lending On 6 August, the Reserve Bank of India proposed restricting NBFC lending exclusively to term loans. This move effectively bars revolving credit facilities like flexi-loans, which allow borrowers to redraw funds. The regulator aims to address liquidity vulnerabilities, prevent loan evergreening, and ensure systemic stability within the non-banking financial sector. ## Industry Response and Adaptation Major non-banking financial companies, including Bajaj Finance and Tata Capital, are actively redesigning their loan products. During Q2FY27 earnings calls, executives confirmed they are exploring alternative structures to maintain credit supply for MSMEs. These firms are testing new term loan variants to replace existing revolving facilities starting in November. ## Impact on Loan Portfolios Estimates suggest revolving credit exposure at large NBFCs ranges from 5% to 20% of assets under management. Tata Capital expects the proposed restrictions to affect approximately 3% to 4% of its total loan portfolio. Smaller fintech and digital lenders focused on MSME financing may face more significant operational challenges from these changes. ## Regulatory Stance Remains Firm RBI Governor Sanjay Malhotra indicated the central bank is unlikely to dilute the proposed framework despite industry feedback. The regulator maintains that NBFCs were never permitted to offer revolving credit products. Officials suggest that digital technology enabled lenders to offer these facilities disguised as term loans, necessitating this clear regulatory intervention. ## Operational Challenges for Lenders Lenders are struggling with the transition, particularly for products like supply-chain finance and invoice discounting. These models typically do not require fresh underwriting for every draw, which conflicts with the new term loan requirements. Firms are now seeking ways to tweak these models to comply while maintaining their high growth targets. ## Strategic Product Restructuring Bajaj Finance is launching new term loan variants on 1 November that prohibit withdrawals but offer attractive features to ensure a middle path. Tata Capital is also testing alternative product structures to contain potential impacts. These firms aim to balance regulatory compliance with the need to support their existing borrower segments effectively. ## Market and Competitive Dynamics NBFCs argue that restricting these products could push MSME borrowers toward the informal lending ecosystem. Meanwhile, traditional banks anticipate a shift in credit demand as NBFCs lose their ability to extend revolving facilities. Kotak Institutional Equities noted that any loss of business must be offset elsewhere to sustain 25% growth. ## Long-term Sector Implications The regulatory crackdown signals a permanent shift in how NBFCs manage liquidity and product innovation. While the immediate impact on portfolios may be limited, the necessity to move away from revolving credit forces a fundamental change in business models. Future growth will depend on how successfully these lenders adapt their underwriting processes. ## Sources covering this story - https://www.livemint.com/industry/rbis-proposed-curbs-on-revolving-credit-push-nbfcs-back-to-the-drawing-board-11793711901553.html — --- _Summary written by Brifing from the original reporting. Copyright in the original article belongs to its publisher; read the full piece at the link above._