RBI's draft curbs on NBFC revolving credit spark debate over flexi-loan bans
The RBI has proposed restrictions on revolving credit offered by NBFCs, prompting industry experts to argue that a blanket ban on flexi-loans could hurt MSMEs and borrowers.
The Reserve Bank of India issued draft directions on August 6 to restrict revolving credit products supplied by NBFCs, leaving credit-card lines untouched. RBI Governor Sanjay Malhotra indicated the board will review feedback before finalising the rules, citing concerns about evergreening and unchecked leverage. Industry commentators highlight that flexi-loans, unlike true revolving facilities, follow a fixed amortisation schedule, require mandatory instalments and have a predetermined maturity, allowing borrowers to prepay and redraw within limits.
They argue that eliminating such products could force MSMEs and self-employed borrowers into multiple separate loans, increasing fees, stamp duties and potentially harming credit scores. The piece suggests targeted safeguards—such as blocking redraw rights after missed EMIs—rather than a sweeping ban, noting that flexi-loans represent roughly Rs 2.5 trillion of credit in the market.
Why it matters
The RBI's approach will shape credit access for millions of small businesses and households in India.
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