Home / Business and Economy / RBI Proposes Ban on NBFC Revolving Credit
RBI Proposes Ban on NBFC Revolving Credit
10 Aug
Summary
- RBI proposed barring NBFCs from offering revolving credit products.
- Bajaj Finance has significant exposure to revolving credit facilities.
- NBFC stocks declined following the RBI's proposal on Friday.
The Reserve Bank of India (RBI) has proposed new regulations that would prohibit NBFCs from offering revolving credit facilities. This move, announced on Thursday, aims to address potential risks such as asset-liability mismatches and ever-greening. These flexible loan products allow borrowers to draw, repay, and re-borrow funds up to a set limit.
Analyst Viral Shah noted that the proposed changes could affect new customer acquisition and revenue streams for NBFCs, as revolving credit often yields higher fees. Lenders might compensate by introducing prepayment charges. NBFCs, unlike banks with stable CASA deposits, have different asset-liability management structures that may not be suited for these products.
The announcement led to a notable decline in NBFC stocks on Friday. Bajaj Finance experienced a drop of over 5%, while Tata Capital, L&T Finance, and Poonawalla Fincorp also saw significant losses. The Nifty Financial Services index decreased by 1.48% following the news.
Experts are seeking clarity on whether other financing types, such as supply-chain and inventory financing, will also be classified as revolving credit. If so, these arrangements might require restructuring, with each funded invoice potentially needing to be treated as a separate loan.
