RBI's Draft Credit Facilities Amendment Directions, 2026: End of Revolving Credit and Demand/Call Loans for NBFCs?

On 6 August 2026, the Reserve Bank of India (RBI) issued the Draft Reserve Bank of India (Non-Banking Financial Companies – Credit Facilities) Amendment Directions,2026 for public comments. While the draft comprises only two pages, the proposed amendments have the potential to significantly reshape the lending landscape for NBFCs.

The amendments introduce statutory definitions for "term loan" and "revolving credit", prohibit NBFCs from offering revolving credit products (except by authorised credit card issuers), and delete the existing regulatory framework governing Demand/Call Loans.

For NBFCs offering credit lines, digital lending products, overdraft-type facilities, or callable loans, these proposals warrant immediate attention.

Background:

The draft seeks to amend the Reserve Bank of India (Non-Banking Financial Companies – Credit Facilities) Directions, 2025, issued on 28 November 2025. RBI proposes these amendments in exercise of its powers under Chapter III-B of the Reserve Bank of India Act, 1934.

The amendments are limited to four changes:

1. Introduction of definitions of Term Loan and Revolving Credit;
2. Deletion of paragraph 5(5);
3. Deletion of the chapter on Demand/Call Loans; and
4. Introduction of restrictions on revolving credit facilities.

Although concise, these amendments could materially alter the permissible credit products that NBFCs may offer.

Amendment 1: Introduction of "Term Loan":

The draft introduces a statutory definition of Term Loan for the first time.

A fund-based credit facility will qualify as a term loan only if all of the following conditions are satisfied:

• The loan is sanctioned for a fixed principal amount;
• The sanctioned amount is disbursed in one or more instalments;
• Repayment is made according to a predetermined amortisation schedule or through a bullet repayment on specified due dates; and
• Once the principal is repaid, the sanctioned limit cannot be restored or replenished.

Important observations:

The definition places emphasis on three characteristics:

1. Fixed Principal Amount: The borrowing limit must be predetermined.

Unlike a credit line, borrowers cannot repeatedly draw and repay funds.

2. Predetermined Repayment Schedule: Every loan must contain a fixed repayment mechanism. Examples include:

• EMI loans
• Bullet repayment loans
• Structured instalment loans

Open-ended repayment structures may not satisfy this requirement.

3. No Replenishment: Perhaps the most significant feature is that repayment cannot restore borrowing capacity. For instance, once ₹5 lakh has been repaid, the borrower cannot re-utilise that amount without a fresh sanction.

This effectively distinguishes a term loan from a revolving credit facility.

Amendment 2: Definition of Revolving Credit:

The draft defines Revolving Credit as: “Any fund-based credit facility which does not meet the definition of a term loan.”

Although only one sentence long, this definition is extremely broad.

Rather than describing what revolving credit is, RBI defines it negatively—every fund-based facility that fails the term loan test becomes revolving credit.

This may potentially cover:

• Credit line products;
• Revolving business finance;
• Working capital limits;
• Digital credit limits;
• Overdraft-like facilities;
• Replenishable consumer credit;
• Certain BNPL structures;
• Merchant credit limits.

The exact scope will depend upon the final Directions and any subsequent RBI clarification.

Amendment 3: Prohibition on Revolving Credit:

The draft inserts a new Paragraph 108A, which provides: “NBFCs shall only offer credit products which are in the nature of term loans and shall not offer any revolving credit products.”

This is arguably the most consequential amendment.

Unlike earlier restrictions that regulated specific products, the proposal adopts a product-level prohibition.

Sole Exception: The restriction does not apply to NBFCs authorised by RBI to issue credit cards.

This recognises that credit cards inherently operate as revolving credit facilities.

Amendment 4: Deletion of Demand/Call Loan Provisions:

The draft deletes the entire Part D – Demand/Call Loans from Chapter VIII.

Although only one line in the draft, this deletion raises significant interpretational questions.

What are Demand/Call Loans?

Demand loans are loans that become repayable whenever repayment is demanded by the lender.

Unlike conventional term loans, they generally do not operate through a predetermined amortisation schedule.

Historically, RBI regulated such loans through a dedicated chapter prescribing conditions for their grant and monitoring.

That dedicated framework is now proposed to be deleted.

Does deletion mean Demand Loans are now unrestricted?

Probably not.

In fact, when the amendments are read together, the opposite appears more likely.

Consider the sequence:

Step 1: A permissible NBFC credit product must now be a term loan.

Step 2: A term loan must have a predetermined repayment schedule.

Step 3: A demand loan is generally repayable on demand rather than under a predetermined schedule.

Step 4: If it does not satisfy the definition of term loan, it may fall within the residual category of revolving credit, which NBFCs are prohibited from offering.

However, it is important to emphasise that the draft does not expressly state this conclusion.

Accordingly, this is an interpretation based on reading the amendments together, not a stated regulatory position.

Interpretational Issues: 

The draft leaves several important questions unanswered.

(i) Existing Demand Loans: Will existing facilities continue until maturity? Or must they be restructured? The draft is silent.

(ii) Bullet Repayment Loans:  Suppose a loan is repayable in one instalment after twelve months. Would it qualify as a term loan? Probably yes, because the definition expressly recognises bullet repayments.

(iii) Callable Loans: Can lenders retain contractual rights to accelerate repayment upon default?

(iv) Acceleration: The draft does not address acceleration clauses; Commercial acceleration following an event of default is fundamentally different from a loan that is inherently repayable on demand. Further clarification from RBI would be useful in this regard.

(v) Working Capital Finance: Many NBFCs provide flexible working capital products. If the sanctioned limit is replenished after repayment, such products may now require redesign to comply with the proposed definition of a term loan.

Industry Impact:

The proposal could affect:

• Digital lending NBFCs;
• Fintech platforms;
• MSME lending companies;
• Consumer finance NBFCs;
• Working capital lenders;
• Embedded finance providers;
• BNPL operators;
• Supply chain finance participants.

NBFCs offering only traditional EMI-based loans may experience minimal disruption.

Key Takeaways:

Amendment	Practical Effect
Definition of Term Loan	Introduces a statutory test requiring fixed principal, predetermined repayment schedule and no replenishment.
Definition of Revolving Credit	Residual definition covering any fund-based facility that does not qualify as a term loan.
Restriction on Revolving Credit	NBFCs can offer only term loans, except authorised credit card issuers.
Deletion of Demand/Call Loan Chapter	Removes the dedicated regulatory framework, creating interpretational questions regarding the future treatment of such facilities.

Our Analysis:

The Draft Amendment Directions reflect a clear regulatory preference for structured, amortising lending over open-ended credit facilities. By defining a "term loan" through objective criteria and prohibiting all other fund-based credit products that do not meet those criteria, RBI appears to be steering NBFCs towards predictable repayment structures and away from replenishable or callable lending models.

The deletion of the Demand/Call Loan chapter, when viewed alongside the new definitions, is particularly noteworthy. While the draft does not explicitly prohibit demand loans, it also no longer provides a dedicated regulatory framework for them. This raises an important interpretational issue: if a demand loan lacks a predetermined repayment schedule, it may not qualify as a term loan and could therefore be treated as a prohibited revolving credit facility. The draft, however, does not expressly confirm this position, making it one of the most significant areas requiring clarification during the consultation process.

Until RBI issues the final Directions or explanatory guidance, NBFCs should avoid assuming that the deletion of the Demand/Call Loan provisions amounts to deregulation. Instead, they should undertake a comprehensive review of their lending products, particularly credit lines, working capital facilities, digital lending products, and callable loan structures, to assess their alignment with the proposed framework and consider appropriate representations to RBI before the amendments are finalised.

Disclaimer: This article is based on the Draft Reserve Bank of India (Non-Banking Financial Companies – Credit Facilities) Amendment Directions, 2026, issued for public consultation. The proposals are not yet final and may be modified before notification. The views under the "Our Analysis" section are interpretative and should not be construed as RBI's stated position.