Revolving credit ban will impact a larger section, NBFCs tell RBI

Industry seeks clarity on products allowing limited redraw and supply-chain finance, as well as whether recovery calls can be made through the mandated 1600-number series

The Reserve Bank of India’s (RBI’s) recent proposal to ban revolving credit offered by non-banking financial companies (NBFCs) would impact a larger section of players and products, as compared to what was estimated earlier, the Finance Industry Development Council (FIDC) told the regulator on Thursday. FIDC is a self-regulatory organisation for shadow banks.

 

The FIDC and representatives of NBFCs met RBI Deputy Governor S C Murmu and shared their feedback. The Council urged the regulator to rethink the decision on such a blanket ban, sources told Business Standard.

 

“Initially, the impact was seen to be limited to three or four NBFCs. But the feedback has shown that a much larger section of the industry could be impacted. The RBI may, therefore, look at a partial restriction rather than a blanket ban,” an NBFC chief executive said.

 

Around 30-40 lenders have submitted their responses to FIDC. All suggestions discussed by the industry will be consolidated and sent to the RBI through the Confederation of Indian Industry (CII), sources said.

 

“The RBI is still receiving a lot of views. The purpose of putting out a draft is to take the public view, absorb the feedback, and then convert it into regulation,” another NBFC chief executive said.

 

A key concern for lenders is the treatment of products that allow limited redraw or replenishment within an existing sanctioned facility. NBFCs have argued that such facilities do not necessarily constitute the kind of revolving lending that the RBI seeks to restrict.

 

“The issue is that there is something in between a conventional term loan and what the RBI may be defining as revolving credit. There are products that technically may not fit neatly into the definition, and that is where the industry has sought greater clarity,” an industry executive said.

 

Supply chain finance is another area where NBFCs have sought an exemption or specific clarification. Lenders said such financing is closely monitored through goods and services tax (GST) data, and that loans are disbursed directly to suppliers rather than borrowers.

 

The RBI's proposal is aimed at ensuring repayment discipline and addressing concerns around borrower creditworthiness and loan evergreening. NBFCs, however, have said a broad definition could capture legitimate lending products.

 

“The industry is not opposed to the objective of preventing evergreening or ensuring borrower credibility. The concern is over a blanket definition that could capture products which are not being used for that purpose,” an another NBFC chief executive said.

 

The final guidelines on revolving credit could take another two months as the RBI assesses the feedback before deciding on the scope of restrictions.

 

Separately, NBFCs have sought clarity on whether recovery calls can be made through the 1600-number series mandated for service and transactional calls by regulated financial entities.

 

“Sales calls should be outside the 1600 series. We fully agree with that. But whether recovery calls fall under service calls is still a question. That needs to be clarified,” a source said.

 

The Telecom Regulatory Authority of India (Trai) has mandated regulated financial entities to use the 1600 series for service and transactional voice calls. NBFCs said the framework could create difficulties in recovery if borrowers do not answer or block calls from these numbers.

 

“If you are doing mass recovery calls and people are blocking those numbers, the whole purpose is lost,” the source said.

 

Lenders also want clarity on whether they can use regular numbers after unsuccessful attempts through the 1600 series. “Either Trai or the Department of Telecommunications (DoT) should clarify this. There are no clear answers at present,” the source said.