NBFC body seeks RBI rethink on revolving credit restrictions

The Finance Industry Development Council (FIDC) has written to the Reserve Bank of India, seeking a review of proposed restrictions on revolving credit facilities that would limit the restoration of repaid principal amounts.

The industry body cautioned that stringent curbs on such products could have unintended consequences for the broader financial ecosystem. A blanket restriction on restoring repaid amounts would raise borrowing costs and constrain credit availability for vulnerable borrower segments, the FIDC said.

Revolving credit products are widely used by micro, small and medium enterprises (MSMEs) for managing working capital requirements, as well as by individual consumers for various short-term borrowing needs. These facilities allow borrowers to reuse available credit lines as they repay outstanding amounts, providing operational flexibility.

The council has urged the central bank to consider a more nuanced regulatory approach that addresses underlying risks while preserving the utility of these credit instruments. The FIDC's appeal reflects growing concerns within the non-banking financial services sector about the potential impact of the proposed measures on lending to underserved segments of the economy.

The RBI has been tightening oversight of unsecured lending and retail credit products amid concerns about rising household debt and retail credit stress.