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According to the draft directions issued by the Reserve Bank of India, the NBFCs can only offer term loan products under draft norms. The RBI has also defined term loans and revolving credit in the draft amendment.
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Shares of Bajaj Finance Ltd., one of India's largest non-bank lenders, are down over 4% on Friday, August 7. This is the second straight day of losses for the stock, having declined another 2% on Thursday as well.
On Thursday, the Reserve Bank of India issued draft amendment directions on credit facilities for non-bank lenders (NBFCs). The draft amendment direction proposes a ban on revolving credit facilities by these NBFCs.
According to the draft directions, the NBFCs can only offer term loan products under draft norms. The RBI has also defined term loans and revolving credit in the draft amendment.
The draft amendment has exempted credit cards issuing NBFCs from the proposed revolving credit ban. These norms propose to take effect immediately once notified. Comments on the same have been invited by the central bank until August 28, 2026.
RBI has also sought to remove existing provisions on demand and call loans under the NBFC directions.
According to brokerage firm Bernstein, the proposal is an industry-wide measure affecting NBFCs with significant flexi-loan portfolios, adding that not growth, but asset quality is the bigger risk for such units.
Withdrawal of such revolving credit could expose hidden borrower stress and weaken repayment behavior as revolving credit carries higher underwriting and collection risks across the sector, Bernstein said.
"While lenders such as Bajaj Finance may possess systems needed to manage these portfolios, the same may not hold true across the broader industry," the Bernstein note said, adding that the credit demand may gradually shift to conventional term loans, thereby limiting the long-term growth impact.
Calling the draft a negative for the NBFC sector, Bernstein said that banks face a limited direct growth impact, but could see asset quality spillovers if borrower stress emerges.
Shares of Bajaj Finance had recent hit record high levels after its June quarter results, which had also propelled the stock to a record high. Shares are now trading 4% lower on Friday at ₹1,099.5. The stock is still up 13% so far this year.
