FISME recommended that existing facilities be grandfathered until maturity or annual review and that NBFCs and borrowers be granted a six-to-twelve-month transition period to comply with any revised framework
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The Reserve Bank of India’s (RBI) proposal to prohibit revolving credit facilities offered by non-banking financial companies (NBFCs) could significantly disrupt working-capital access for micro, small and medium enterprises (MSMES), increase borrowing costs and drive businesses towards less regulated sources of finance, the Federation of Indian MSMEs (FISME) has cautioned.
While acknowledging that the proposed restrictions are intended to curb opaque lending practices, hidden borrower stress and loan evergreening, FISME has urged the RBI to adopt a targeted regulatory approach rather than a blanket ban on revolving credit products.
FISME said the proposed prohibition could adversely affect a range of widely-used business-finance products, including reusable digital working-capital lines, flexi-credit facilities, dealer finance, supply-chain finance and recurring invoice-based funding arrangements.
“Forcing these facilities into a non-revolving term-loan structure could create operational inefficiencies for MSMEs, requiring fresh documentation, repeated approvals and higher processing costs for each funding cycle. This would reduce flexibility, delay access to credit and increase the overall cost of borrowing,” FISME said.
Working capital
It further cautioned that restricting legitimate revolving working-capital products could push vulnerable businesses towards more expensive and less regulated forms of credit, undermining the objective of promoting formal financial inclusion.
“RBI’s concern regarding indefinite rollovers, hidden borrower stress and harmful app-based lending is understandable. However, working capital for a productive enterprise is fundamentally different from consumer revolving credit. Regulation should address product risks and market conduct without eliminating a legitimate financing tool that supports business operations,” said Anil Bhardwaj, Secretary General, FISME.
To address RBI’s concerns while preserving access to business credit, FISME has proposed allowing properly appraised revolving facilities for genuine business purposes, subject to safeguards such as fixed sanctioned limits, annual renewals, periodic credit reviews, borrower-level exposure reporting, continuous monitoring of cash flows or receivables, transparent pricing and strict restrictions on automatic rollovers of stressed accounts.
It also called for explicit protection of factoring, invoice discounting, dealer finance, supply-chain finance and trade receivables electronic discounting system (TReDS)-linked funding, arguing that these are essential working-capital instruments for MSMEs.
In addition, FISME recommended that existing facilities be grandfathered until maturity or annual review and that NBFCs and borrowers be granted a six-to-twelve-month transition period to comply with any revised framework. In its feedback to the RBI, it has urged that borrowers should not be subjected to fresh processing, foreclosure or conversion charges solely because facilities need to be restructured to meet regulatory requirements.
FISME said concerns around app-based lending could instead be addressed through stronger digital-lending safeguards, including explicit borrower consent, fixed credit limits, transparent disclosure of outstanding dues and borrowing costs, restrictions on automatic limit enhancements, enhanced supervision of repeated rollovers and robust data-protection standards under India’s Digital Personal Data Protection framework.
Published on August 27, 2026