Source: Business Standard
Context: The Finance Industry Development Council (FIDC), the self-regulatory organisation (SRO) for the NBFC sector, is set to flag concerns over the RBI’s proposed ban on revolving credit products. The industry argues the move could create regulatory arbitrage in favour of banks.
What the RBI Has Proposed
In draft guidelines issued on 6 August, the RBI proposed restricting NBFCs to offering only term loans — effectively barring them from providing revolving credit facilities.
What is Revolving Credit?
| Feature | Revolving credit | Term loan |
|---|---|---|
| How it works | A sanctioned limit the borrower can draw, repay and draw again | A fixed amount disbursed once, repaid on a set schedule |
| Examples | Cash credit, overdraft, working capital limits, credit cards | Home loan, vehicle loan, business term loan |
| Flexibility | Borrower draws only what is needed, when needed | Full amount disbursed upfront |
| Paperwork | One-time sanction, repeated use | Fresh sanction each time |
