Market Plunge: Bajaj Finance and Finserv Shares Dip as RBI Restricts NBFCs from Revolving Credit Facilities
The Non-Banking Financial Company (NBFC) sector saw significant downside movement in the market on Friday following a proposal issued by the Reserve Bank of India (RBI). The central bank has proposed new prudential norms that will restrict NBFCs to offering only term loans, effectively banning them from providing general revolving credit facilities.Shares of Bajaj Finance and Bajaj Finserv fell amid this news. Bajaj Finance shares dropped 4.5% to trade at Rs 1098.10 on the BSE. Concurrently, those of Bajaj Finserv experienced a decline of 3%, settling at Rs 2020.35 on the same exchange.
NBFC Sector Faces Prudential Norms as RBI tightens Lending Guidelines
The regulatory amendment mandates that NBFCs shall offer only credit products resembling term loans and prohibit any revolving credit offerings. This move represents a significant safeguard measure from the central bank, even though it comes amid an overall encouragement of innovation in financial systems.The restriction does not apply to those NBFCs already authorized by the RBI to issue credit cards. The central bank clarified that this amendment will come into force immediately after the final guidelines are released following the circular issued on Thursday.
Understanding the New Restriction on Revolving Credit Facilities
A term loan is defined as a fund-based credit facility of a fixed principal amount. This loan is disbursed in one or more installments and can be repayable either through periodic installments or via a bullet payment on the stated due date. Once such a limit is sanctioned, it cannot be restored or replenished upon repayment of all or part of the principal amount.Conversely, revolving credit refers to any fund-based facility where lenders set a fixed credit limit. In this structure, customers are allowed to borrow money and then repay it, only to borrow again within that established limit. Examples of such facilities include bank overdraft accounts and business working capital lines.
Regulatory Hurdles: Credibility Cards for NBFCs in Focus
The RBI noted specific regulatory requirements concerning the issuance of credit cards by NBFCs. Standalone NBFCs must acquire explicit prior regulatory approval from the central bank. Furthermore, they are required to maintain a minimum net-owned fund of Rs 100 crore to issue credit cards independently.Some financial institutions manage this through partnerships, offering co-branded credit cards in collaboration with established banks. The proposal underscores the RBI’s commitment to prudent lending practices while still encouraging innovation within the credit products space.
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