NBFC Shares Plunge as RBI Draft Bans Revolving Credit Facilities; Bajaj Finance Stock Takes Biggest Hit

NBFC Shares Plunge as RBI Draft Bans Revolving Credit Facilities; Bajaj Finance Stock Takes Biggest Hit​

Shares of major Non-Banking Financial Companies (NBFCs) experienced sharp declines on August 7 following the Reserve Bank of India's release of draft guidelines. The guidelines prohibit NBFCs from offering revolving credit facilities, triggering immediate concern among investors regarding business models heavily reliant on these flexible lending structures.

Bajaj Finance and Tata Capital were notably affected by this development. Bajaj Finance, which operates significant flexi loan portfolios, saw its stock drop 4.5% at Rs 1,094.9. Similarly, Tata Capital shares fell 3.3%, trading at Rs 370.05 apiece.

The RBI Draft Guidelines and Lending Restrictions​

The draft rules introduce a critical shift in how lending facilities can be structured by NBFCs. Under the proposed guidelines, companies can only offer term loans where the credit limit is not restored or replenished after repayment of the principal amount.

Revolving credit is defined as distinct from traditional term loans with a fixed amortization schedule. The new mandate effectively means that once a sanctioned limit is disbursed, it cannot be renewed even if the borrower makes partial or full repayments.

Flexi Loan Exposure Puts Pressure on NBFC Stocks​

This regulatory change directly impacts lending segments such as flexi and overdraft loans across corporate, MSME, and unsecured personal loan categories, according to market analysts. Bajaj Finance holds a substantial exposure in this high-risk, flexible segment.

Analysts estimate that flexi loans could constitute nearly 25% of Bajaj Finance's Assets Under Management (AUM), although the company has not officially disclosed this figure. The pressure on the stock stems from this concentration risk tied to the potential regulatory overhaul.

Implications of Term Loans vs Revolving Credit​

The shift away from revolving credit introduces significant operational challenges for companies that currently profit from loan longevity and fee structures. Currently, customers can repay and reuse a sanctioned limit multiple times while the NBFC earns an annual maintenance fee on the approved limit regardless of actual usage.

A Bonanza Research Analyst noted that if these draft rules are implemented as proposed, Bajaj Finance may face slower loan growth and potentially lower fee income. The model supporting steady fee income through prolonged outstanding limits could be severely disrupted by this new framework.

Business Operations in the Face of Regulation​

Bajaj Finance possesses a considerable footprint in related lending products, including its MSME book which stands at $5.4 billion. Furthermore, the company manages 97.71 million EMI cards that offer revolving limits up to Rs 3 lakh, as reported by industry channels.

The proposed changes represent a significant shift toward structured term loans for NBFCs. While this mandates higher initial scrutiny of lending practices, it requires companies like Bajaj Finance to undergo potential product strategy revisions.