RBI’s revolving credit curbs: Why Tata Capital sees limited impact

Non-banking finance major Tata Capital says revolving credit accounts for only a small share of its overall loan book, and that it plans to share feedback with the Reserve Bank of India on the regulator's proposal to restrict NBFCs from offering such facilities.

The RBI defines revolving credit as any fund-based credit facility that does not meet the definition of a term loan. 
The central bank, on August 6, issued a draft circular proposing that NBFCs be allowed to offer only credit products in the nature of term loans, and not revolving credit products.

NBFCs authorised by the RBI to issue credit cards would be exempt from this restriction, the circular further noted. 
Currently, State Bank of India's unit SBI Cards and Payment Services and BobCard, the arm of Bank of Baroda, are the only two NBFCs issuing credit cards. Only these two would be exempt.

Others, including Tata Capital and Bajaj Finance, could be affected if the RBI implements the proposal. 
Speaking to reporters on the sidelines of the FICCI FIBAC summit on Tuesday, Tata Capital CEO Rajiv Sabharwal said less than 5% of the company's loan book comprised revolving credit. He said the RBI had sought feedback and that the company would submit its response.

For Tata Capital, the impact may not be significant, he said, adding that the non-bank lender would comply with the final regulation.

Other NBFCs and industry forums are also expected to provide feedback on the proposal to the regulator.

According to Shreya Khandelwal, research analyst at PL Capital (Prabhudas Lilladher), any reusable credit line, overdraft facility or flexi-loan product offered by NBFCs in the corporate, MSME and unsecured personal loan categories is likely to be impacted.
"Proposed RBI amendments would require NBFCs to restructure their existing revolving credit products, with potential implications on customer proposition, fee income and product economics. While the full impact will depend on the final guidelines, diversified NBFCs may be better placed to mitigate disruption through alternative product offerings," said Khandelwal.

According to Jugal Mantri, ED and CEO, Anand Rathi Global Finance, NBFCs may no longer be able to offer line-of-credit facilities against collateral.

"While this may bring greater regulatory consistency, it could also take away an important flexibility from borrowers. At the same time, it could place banks at an advantageous position, potentially creating an uneven playing field between banks and NBFCs," he felt.

The move could also affect fintech firms and new-age digital lenders that offer credit-line facilities, executives say.