RBI has proposed restricting NBFCs to term loans only, barring revolving credit products like flexi loans and overdraft-style facilities. It's still a draft, and here's what's actually in it.
On 6 August 2026, the RBI released a draft circular proposing that NBFCs be permitted to offer only credit products in the nature of a term loan, and barred from offering revolving credit products. Under the draft, revolving credit is defined broadly: any fund-based credit facility that doesn't meet the definition of a term loan. A term loan, by contrast, can be disbursed in one or more tranches, but has to follow a fixed repayment schedule; once repaid, the limit can't be redrawn or reused.
The draft carries one notable exception: NBFCs specifically authorised by RBI to issue credit cards (currently SBI Cards and BobCard) would be exempt.
The proposal takes the form of draft amendments to RBI's Credit Facilities Directions, 2026 (itself built on directions first issued in November 2025). Comments closed on 28 August 2026, and as of the date of this post it remains a draft, not yet a final circular. We'll update this post once RBI issues its final direction.
The stated concern is around high-risk revolving products (flexi loans, overdraft-style facilities, digital credit lines) where a borrower can keep drawing against a limit indefinitely. RBI's worry is that some borrowers end up using fresh revolving credit to service existing dues, effectively rolling debt forward rather than repaying it.
If finalised as drafted, this reaches further than consumer credit lines. Industry body FIDC (Finance Industry Development Council) has flagged that a blanket ban could disrupt working-capital products MSMEs rely on, including overdraft-style facilities and loans against securities, not just the higher-risk retail flexi products the rule seems aimed at.
That matters directly for the MSME owners we work with: working capital (OD/CC/LC) is one of the more common structures on MSME files, precisely because it's built for a business's cash-flow cycle rather than a fixed monthly outflow. A shift to term-loan-only structures would change how that working capital gets sized and repaid.
If you currently hold, or are being offered, a flexi loan, overdraft, or digital credit line from an NBFC, it's worth understanding now whether it would be classified as revolving credit under the draft definition, and what restructuring into a term loan would actually mean for your repayment schedule and cash flow.
This is exactly the kind of fine print we walk clients through before they sign anything, not after. If you want a second read on a facility you're already holding or being offered, book a call and we'll go through it with you.
A 10-minute call with our team usually clears it up faster than an email chain.