If you use a "credit line" app that lets you borrow, repay, and borrow again from the same limit, a new RBI draft could change that completely. The regulator wants to shut this model down for most NBFCs — and the change is proposed to apply the moment it's finalised, with no transition window.
What Just Happened
On 6 August 2026, the RBI released draft amendments to the Reserve Bank of India (Non-Banking Financial Company) Credit Facilities Directions, 2026, building on the existing framework issued in November 2025. The core proposal is blunt: an NBFC "shall only offer credit products which are in the nature of term loans and shall not offer any revolving credit products."
The only carve-out is for NBFCs specifically authorised by the RBI to issue credit cards — currently just SBI Card and BoB Financial Solutions (BoB Cards). Virtually every other NBFC in India, from large diversified lenders to small fintech-partnered shops, would fall on the restricted side of that line if the draft is notified as written.
The RBI invited public comments until 28 August 2026, which has now closed. As drafted, there's an important detail worth flagging: the amendments are proposed to take immediate effect on notification, with no transition period specified.
Term Loan vs Revolving Credit: What's the Actual Difference?
This is the first time RBI directions have formally defined both terms with this level of precision, and understanding the difference is the key to understanding what's changing.
| Term Loan | Revolving Credit | |
|---|---|---|
| How it's disbursed | A fixed, sanctioned amount, given in one go or in instalments | A limit you can draw from repeatedly |
| What happens when you repay | The loan is closed — done | Your available limit is restored, and you can borrow again |
| Repayment structure | A predetermined EMI schedule | Flexible — pay minimum or more, reuse what you repay |
| Common examples | A personal loan, a car loan, an education loan | A "credit line" app, an overdraft facility, a flexi loan, some pay-later products |
Under the draft, once you repay a term loan, that sanctioned limit cannot be restored or reused — you'd need a fresh loan for further borrowing. Revolving credit is exactly the opposite: draw, repay, and draw again from the same approved limit, often with no fixed end date.
What Kind of Products Does This Actually Affect?
If the amendments are notified as drafted, several common lending products offered by NBFCs would need to be restructured or discontinued:
- "Credit line" apps that let you draw funds on demand up to a pre-approved limit, common in the retail fintech space.
- Flexi loans, where you're sanctioned a limit and can withdraw and repay in parts over time.
- Overdraft-style facilities, similar to a bank overdraft but offered by an NBFC.
- Digital "pay later" products built on an NBFC partnership rather than a bank-issued credit card.
This does not affect a standard personal loan, car loan, or any product where you receive a fixed amount and repay it on a set schedule — those already fit the term loan definition and aren't touched by this change.
Why the RBI Is Doing This
This draft isn't happening in isolation — it follows growing regulatory concern about how fast perpetual, revolving retail credit has grown in India. As early as 2025, the RBI had flagged that some NBFCs were extending large volumes of credit through perpetual credit lines — reportedly in the range of ₹50,000–60,000 crore — and cautioned lenders about the risks of continuous credit access without a clear, fixed repayment schedule or robust assessment of a borrower's actual repayment capacity.
The underlying worry is something regulators call loan evergreening: a borrower keeps drawing and repaying just enough to keep a facility technically "current," while the underlying debt never really shrinks — masking genuine repayment stress rather than resolving it. Formally restricting NBFCs to fixed, transparent term loans is aimed at closing that gap.
What This Means If You Use One of These Products
If you currently use an NBFC-issued credit line, flexi loan, or overdraft-style facility, here's what to actually watch for:
- Check whether your credit facility is from an NBFC or a bank. This rule specifically targets NBFCs (other than authorised credit card issuers). A bank-issued credit card or overdraft isn't affected by this draft.
- Understand that "no transition period" means changes could arrive without much warning. Since the amendments take effect immediately on notification as drafted, an NBFC could need to restructure or close a revolving facility on short notice once the final rules land.
- Expect possible product changes from your lender. Your NBFC may convert your existing facility into a series of term loans, ask you to close it out, or offer a replacement product that complies with the new structure.
- Don't assume your available "reusable" limit will behave the same way going forward. If your facility gets reclassified, a repaid amount may no longer automatically restore your available credit the way it used to.
- Reach out to your lender directly for clarity if you rely on a revolving facility for regular cash flow — early clarity on whether your specific facility can run to maturity or will need restructuring is worth getting in writing.
It's also worth being cautious about the app itself. If you're using a lending app you're not fully sure is properly backed by an RBI-regulated entity, our guide on how to check if a loan app is really RBI-registered walks through exactly how to verify this before you borrow — a genuinely useful check regardless of how this specific rule plays out.
The Industry Pushback
The NBFC sector's main representative body, the Finance Industry Development Council (FIDC), wrote to the RBI on 27 August 2026 — a day before the comment deadline — asking the regulator to soften the proposal. Their central ask: let a borrower who repays part of their principal early get that repayment headroom back, rather than losing it permanently, as long as appropriate guardrails prevent the facility from functioning as unchecked perpetual credit.
Whether the RBI accommodates this in the final directions remains to be seen. Until the final rules are notified, existing NBFC revolving credit products continue to operate as they currently do.
Why a Term Loan Might Actually Be the Better Choice Anyway
Even setting the regulatory change aside, a term loan has real advantages over revolving credit for most borrowers trying to manage their finances carefully:
- A fixed EMI is easier to budget around than an open-ended facility where the temptation to keep drawing can quietly build up debt.
- A defined end date gives you a clear finish line, rather than a facility that can, in principle, continue indefinitely.
- It's easier to track your Fixed Obligation to Income Ratio (FOIR) — how much of your income is already committed to debt — with a fixed EMI than with a revolving balance that changes month to month. Our guide on understanding FOIR explains why this matters for your own financial planning, regardless of what regulators require of lenders.
- Consistent term-loan repayment can build a stronger credit history, since a clear repayment pattern on a fixed-schedule loan is straightforward for the credit bureau to track and reflect in your CIBIL score.
If you're evaluating whether to move from a revolving credit line to a straightforward personal loan — whether by choice or because your existing facility is being restructured — it's worth comparing the real numbers. MLE's EMI & Prepayment Calculator can show you exactly what a fixed-tenure personal loan would cost against what you're currently paying, and our Personal Loan page has current rates and eligibility if you're ready to explore it.
Frequently Asked Questions
Does this rule affect my personal loan? No. A standard personal loan — a fixed amount disbursed once and repaid through a set EMI schedule — already fits the definition of a term loan. This draft only restricts revolving credit products.
Is this rule already in effect? No. It's currently a draft. The RBI's comment period closed on 28 August 2026, but the amendments haven't been finalised or notified yet. As drafted, they would take effect immediately upon notification, with no announced transition period.
What happens to my existing credit line if this rule is finalised? This isn't fully clear yet, since the draft doesn't specify how existing facilities should be treated. Your NBFC may restructure your facility into term loans, offer an alternative product, or ask you to close it — it's worth asking your lender directly for clarity on your specific account.
Does this apply to credit cards? No. NBFCs specifically authorised by the RBI to issue credit cards (currently SBI Card and BoB Cards) are exempt, since revolving credit is a core, inherent feature of how credit cards work.
Why is the RBI restricting revolving credit for NBFCs? The RBI has cited concerns about NBFCs extending large volumes of credit through perpetual, revolving facilities without a clear repayment schedule or robust assessment of a borrower's repayment capacity — a pattern that can mask underlying repayment stress rather than resolve it.
Does this apply to bank-issued overdrafts or credit lines? This specific draft targets NBFCs under the Credit Facilities Directions. Bank-issued products are governed separately and aren't the subject of this particular amendment.
Disclaimer: Loans and investments are subject to credit assessment and market conditions. Please read loan terms and scheme-related documents carefully before proceeding.