NBFCs are developing alternative lending products as the Reserve Bank of India (RBI) plans restrictions on revolving credit facilities. The shift toward the term loan model aims to protect lending volumes and retain customers. Bajaj Finance and Tata Capital have already started introducing or testing new products ahead of the RBI's final decision.
Key Highlights
- Bajaj Finance launched new term-loan variants from November 1.
- Tata Capital plans to convert more than half of its flexi-credit portfolio into modified products.
- Revolving credit exposure across NBFCs is estimated at around ₹2 lakh crore.
The RBI's August draft allows NBFCs to offer loans disbursed in one or more installments, provided they follow a fixed repayment schedule. Repaid principal cannot be added back to the sanctioned borrowing limit. This differs from revolving credit, which allows borrowers to withdraw, repay and borrow again within an approved limit. Such facilities are widely used for working capital requirements.
Bajaj Finance and Tata Capital test new products
Rajeev Jain, vice chairman and managing director of Bajaj Finance, said the company had introduced different term loan variants from November 1. These products do not allow borrowers to withdraw funds again after repayment.
Speaking during the October 19 earnings call, Jain said a complete ban on revolving credit could temporarily affect the company's assets under management (AUM). It could also marginally compress net interest margins and profitability. However, Bajaj Finance is preparing alternatives ahead of the regulator's final decision.
Tata Capital is also developing modified flexi-loan products. Managing director and CEO Rajiv Sabharwal said the company expects to convert more than half of its flexi-credit portfolio into products without revolving facilities.
The company has already tested some alternatives and plans to begin further trials in early November. Sabharwal said during the October 27 earnings call that the modified products would be priced almost similarly to existing flexi-loans.
Flexi-loans account for around 2-2.5% of Tata Capital's loan book. Nearly 90% of this business serves micro, small and medium enterprises (MSMEs). The company has maintained its revolving-credit exposure while awaiting the final regulations.
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Other NBFCs report limited revolving credit exposure
Several other lenders have indicated that their exposure to revolving credit facilities remains relatively small.
Aditya Birla Capital's NBFC Chief Rakesh Singh said its exposure is very limited and mainly includes supply-chain financing and loans against shares.
Cholamandalam Investment and Finance Company's CFO D Arul Selvan said revolving credit accounts for just 0.6-0.7% of its loan book, or approximately ₹1,600 crore. Most of this exposure comes from flexi-personal loans.
Shriram Finance Executive Vice Chairman Umesh Revankar also indicated limited exposure, primarily through dealer trade advances.
Revankar estimated that outstanding revolving credit facilities across NBFCs total around ₹2 lakh crore, compared with the industry's overall loan book of approximately ₹30 lakh crore.
The proposed restrictions could reshape how NBFCs serve MSMEs and other borrowers that depend on flexible credit. Lenders are now exploring alternative term loan structures to maintain customer relationships and lending activity while preparing for the RBI's final framework.
