Frequently Asked Questions (FAQs) on RBI's Draft NBFC Credit Facilities Amendment Directions, 2026

The Draft Reserve Bank of India (Non-Banking FinancialCompanies – Credit Facilities) Amendment Directions, 2026, released on 6 August 2026, introduces significant changes to the regulatory framework governing credit facilities offered by NBFCs. While the draft is concise, it raises several practical, legal, and operational questions.

The following FAQs aim to assist NBFCs, fintech companies, legal professionals, compliance officers, and other stakeholders in understanding the implications of the proposed amendments.

1. What is the purpose of the Draft Amendment Directions?

The Draft Amendment Directions seek to amend the Reserve Bank of India (Non-Banking Financial Companies – Credit Facilities) Directions, 2025 by:

• introducing statutory definitions of "term loan" and "revolving credit";
• prohibiting NBFCs from offering revolving credit products;
• deleting the existing chapter governing demand/call loans; and
• making consequential amendments to the existing Directions.

2. What is a "term loan" under the draft?

A term loan means a fund-based credit facility having all the following features:

• a fixed principal amount;
• disbursement in one or more instalments;
• repayment through a predetermined amortisation schedule or bullet repayment on the stated due date; and
• once repaid, the sanctioned limit cannot be restored or replenished.

All these conditions must be satisfied.

3. What is "revolving credit"?

The draft defines revolving credit as any fund-based credit facility that does not satisfy the definition of a term loan.

This is a broad residual definition, meaning any facility outside the statutory definition of a term loan may be regarded as revolving credit.

4. Can NBFCs continue offering revolving credit products?

No, if the draft is notified without changes. 

The proposed Paragraph 108A provides that NBFCs shall only offer credit products which are in the nature of term loans and shall not offer revolving credit products.

5. Are there any exceptions?

Yes. The prohibition does not apply to NBFCs authorised by RBI to issue credit cards.

6. Why has RBI proposed this restriction?

The draft does not expressly state the reasons for introducing these amendments.

However, the proposals appear to support broader regulatory objectives such as:

• promoting structured and amortising lending;
• improving credit discipline;
• reducing reliance on open-ended credit products;
• strengthening asset quality; and
• enhancing supervisory oversight of lending products.

These are interpretative observations and not RBI's stated reasons.

7. Is the proposal intended to curb evergreening of loans?

Although the draft does not expressly mention evergreening, the proposed framework may significantly reduce opportunities for such practices.

Evergreening generally refers to the practice of extending fresh credit or restructuring facilities primarily to enable a borrower to service an existing loan without addressing the underlying financial stress.

The proposed definition of a term loan requires:

• a fixed principal amount;
• predetermined repayment; and
• prohibition on restoration of the sanctioned limit after repayment.

Similarly, the prohibition on revolving credit limits the ability to repeatedly draw and repay under the same facility.

Accordingly, one possible consequence of the amendments is a reduction in opportunities for evergreening.

However, RBI has not expressly linked these amendments to evergreening, and therefore this should be regarded as an informed interpretation rather than an official explanation.

8. Does the draft prohibit credit lines?

The draft does not specifically refer to credit line products. However, if a credit line permits restoration of the available limit after repayment, it may not satisfy the statutory definition of a term loan and may therefore constitute revolving credit.

Whether a particular product is permissible will depend upon its legal structure and the final Directions.

9. Will overdraft facilities be affected?

Potentially. Traditional overdrafts generally involve revolving utilisation and replenishment of limits.

Such products may require review if offered by NBFCs.

10. What about working capital loans?

Working capital finance is not specifically addressed. However, revolving working capital facilities may require restructuring if they do not satisfy the definition of a term loan.

11. Will Buy Now Pay Later (BNPL) products be affected?

It depends on the product structure. Traditional instalment-based BNPL arrangements with fixed repayment schedules may continue to qualify as term loans. Conversely, reusable BNPL limits or revolving consumer credit products may require review.

12. What about digital lending products?

Many digital lending models presently offer:

• reusable limits;
• instant redraw facilities;
• revolving consumer credit; or
• pre-approved digital credit lines.

NBFCs operating such products should evaluate whether they satisfy the proposed definition of a term loan.

13. What are Demand/Call Loans?

Demand loans are loans repayable whenever repayment is demanded by the lender rather than according to a predetermined repayment schedule.

The existing 2025 Directions contain a dedicated regulatory framework governing such loans.

The draft proposes to delete that framework.

14. Does deletion of the Demand/Call Loan chapter mean these loans are now freely permitted?

No. The draft merely deletes the existing chapter. It does not state that demand loans become unrestricted. Accordingly, the deletion should not be interpreted as deregulation.

15. Are Demand Loans now prohibited?

The draft does not expressly prohibit demand loans. However, a significant interpretational issue arises.

Since:

• NBFCs may only offer term loans; and
• term loans require predetermined repayment schedules,

many traditional demand loans may not satisfy the statutory definition.

If they do not qualify as term loans, they may potentially fall within the residual definition of revolving credit. 

The draft, however, does not expressly confirm this position.

16. Can bullet repayment loans continue?

Yes. The proposed definition expressly recognises loans repayable through a bullet payment on the stated due date.

17. Are acceleration clauses affected?

The draft is silent. Commercial acceleration clauses triggered upon an event of default are different from loans that are inherently repayable on demand.

Further clarification from RBI would be useful.

18. What happens to existing revolving credit facilities?

The draft contains no transitional provisions. It does not clarify:

• grandfathering;
• continuation of existing facilities;
• migration timelines; or
• treatment of ongoing customer arrangements.

19. Will existing loan agreements need revision?

Likely yes. NBFCs may need to review:

• loan agreements;
• sanction letters;
• lending policies;
• product terms;
• customer disclosures;
• internal SOPs; and
• technology systems,

to ensure consistency with the revised framework.

20. Which NBFCs are likely to be most affected?

The proposals are expected to have the greatest impact on:

• fintech lending NBFCs;
• consumer finance companies;
• MSME lenders;
• embedded finance providers;
• digital lending platforms;
• BNPL providers; and
• NBFCs offering revolving credit facilities.

Traditional EMI-based lenders may be comparatively less affected.

21. What products should NBFCs review immediately?

NBFCs should undertake a review of:

• Credit line products
• Digital credit limits
• Revolving business finance
• Working capital facilities
• Overdraft-type lending
• BNPL products
• Merchant finance
• Supply chain finance products
• Loan agreements
• Core lending systems

22. Does the draft affect credit cards?

No. The restriction does not apply to NBFCs authorised by RBI to issue credit cards.

23. What compliance actions should NBFCs consider?

Pending issuance of the final Directions, NBFCs should:

• map all lending products against the proposed definition of a term loan;
• identify revolving facilities;
• review customer documentation;
• assess technology changes;
• examine operational processes;
• evaluate portfolio impact; and
• consider submitting representations to RBI on areas requiring clarification.

24. What are the key areas requiring clarification from RBI?

The draft leaves several practical questions unanswered, including:

• Whether existing revolving facilities will be grandfathered.
• Treatment of existing demand loans.
• Scope of working capital finance.
• Treatment of redraw or top-up facilities.
• Position of revolving MSME credit products.
• Whether overdraft products remain permissible.
• Transition timelines.
• Treatment of hybrid lending products.
• Impact on co-lending structures.
• Regulatory expectations for migration of existing customers.

25. What is the key takeaway for NBFCs?

Although the Draft Amendment Directions comprise only a few amendments, they represent a potentially significant shift in RBI's approach to NBFC lending. The proposed framework favours closed-end, structured, amortising credit products over open-ended, replenishable facilities.

If finalised in its current form, NBFCs may need to redesign certain lending products, revisit contractual documentation, update internal systems, and reassess business models built around revolving credit. At the same time, the deletion of the Demand/Call Loan framework introduces interpretational uncertainty that merits clarification during the consultation process.

Stakeholders should therefore use the consultation period to undertake a comprehensive product review and engage with RBI on unresolved issues before the amendments are finalised.

 

Related Articles on LendersLaw: If you found this analysis helpful, you may also be interested in our detailed coverage of RBI draft directions: RBI's Draft Credit Facilities Amendment Directions, 2026: End of Revolving Credit and Demand/Call Loans for NBFCs?