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The Federation of Indian Micro and Small and Medium Enterprises (FISME) has urged the Reserve Bank of India to reconsider its proposal to prevent NBFCs from offering revolving credit facilities. The industry body said a blanket restriction could affect legitimate working-capital financing used by MSMEs, which often operate with limited liquidity buffers and face delays in receiving payments. FISME acknowledged the RBI’s concerns over indefinite loan rollovers, hidden borrower stress and opaque lending, but said regulation should focus on the risks associated with a product rather than remove a financing option altogether. Stakeholders can submit feedback on the draft directions until August 28.
The Federation of Indian Micro and Small and Medium Enterprises (FISME) has raised concerns over the Reserve Bank of India’s proposal to bar non-banking financial companies (NBFCs) from offering revolving credit facilities, saying the move could affect working-capital financing available to small and medium enterprises.
FISME has flagged concerns over the draft RBI directions issued earlier this month, which propose that NBFCs should offer only credit products structured as term loans and should not provide revolving credit products. The RBI has invited stakeholder feedback on the draft until August 28.
The industry body said NBFCs play an important role in financing enterprises, sectors, geographies and ticket sizes that are often not adequately served by banks. It cautioned that while the proposed restriction is intended to address opaque lending and evergreening, a blanket ban could also disrupt legitimate working-capital finance used by MSMEs.
FISME Secretary General Anil Bhardwaj said the RBI’s concerns over indefinite rollovers, hidden financial stress among borrowers and harmful app-based lending were understandable. However, he said working-capital finance for productive businesses is different from consumer revolving credit and that regulations should address the risks and conduct associated with a product instead of removing a legitimate financing instrument because it is revolving.
FISME has therefore asked the RBI to retain its focus on transparent, responsible and non-evergreened lending while reconsidering an across-the-board restriction on revolving facilities offered by NBFCs. It suggested that the final directions distinguish consumer convenience credit from productive working-capital finance and address risks through underwriting, monitoring, disclosure and data-governance requirements.
Experts also pointed to the importance of revolving credit for MSMEs. Ranen Banerjee, Partner and Leader, Economic Advisory, PwC India, said a key feature of a revolving credit facility is that the available credit limit is restored when the amount used is repaid.
He said the facility is useful for MSMEs because interest is charged only on the amount utilised. Businesses can also repay the amount when funds become available without having to apply for a fresh loan, unlike a conventional term loan.
Banerjee said the proposed restriction could have some impact on MSMEs, although NBFCs account for around 10-11 per cent of total outstanding credit.
Shrikant Goyal, Managing Director, Getfive Funds, said micro and small enterprises generally operate with limited liquidity buffers, while delayed customer payments remain a major challenge. He said an MSME manufacturer may sell products but receive payment several weeks later, while still having to meet salary, raw material and other operating expenses. Revolving or flexi credit can help bridge this gap, and its removal could affect liquidity and cash flows in the short term.
Goyal, however, said the move could have a longer-term benefit if it encourages MSMEs to manage cash flows and expenses in a more structured manner.
The MSME sector contributes around 31 per cent of India’s GDP, accounts for about 35 per cent of manufacturing output and represents close to half of the country’s merchandise exports. The RBI’s consultation on the proposed directions will therefore be closely watched by lenders and businesses that rely on flexible working-capital arrangements.
Source PTI
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