The Reserve Bank of India (RBI) has sought feedback from non-banking financial companies (NBFCs) on proposed rules governing revolving credit facilities, while calling for stronger compliance, internal audit and risk-management systems across the sector. The move comes as NBFCs increasingly expand into technology-driven lending products and business models, raising concerns about whether internal controls and supervisory frameworks are keeping pace with rapid innovation.
According to a report by NDTV Profit, citing sources, RBI officials recently interacted with senior executives of NBFCs as part of their ongoing supervisory engagement. During the discussions, the central bank emphasised the importance of robust internal controls and closer monitoring of financial products that are growing rapidly.
The RBI’s approach reflects a broader effort to ensure that innovation in the NBFC sector does not outpace risk management. Recent reports have indicated that the central bank is considering tighter conditions around revolving credit products, with the proposed framework potentially requiring NBFCs to obtain specific approval before offering such facilities.
The consultations also covered regulatory alignment with global standards, the role of self-regulatory organisations (SROs), consumer grievance mechanisms, digital lending compliance and obligations under India’s data protection regime.
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RBI Focuses on Risks From Rapidly Expanding NBFC Products
NBFCs have become an important part of India’s financial system, providing credit to individuals, small businesses and companies that may not always be served adequately by traditional banks. Their presence has expanded significantly in areas such as consumer finance, vehicle loans, microfinance, housing finance, personal lending and digital credit.
At the same time, technology has allowed NBFCs to introduce and scale products much faster than in the past. Digital onboarding, automated underwriting, alternative credit assessment and app-based servicing have reduced the time required to originate loans.
While these developments can improve access to finance, they can also create new forms of operational, credit, conduct and technology risk.
The RBI has therefore urged NBFCs to identify risks associated with new products and business models at an early stage rather than waiting for problems to emerge after a product has already achieved significant scale.
This approach is particularly relevant for lending products that allow customers to repeatedly draw and repay funds within an approved credit limit. Unlike a conventional term loan, where the borrower receives a defined amount and follows a predetermined repayment schedule, revolving credit can remain available as long as the facility is active and the borrower meets the applicable conditions.
That flexibility makes such products attractive to consumers and businesses, but it can also make credit exposure more dynamic and potentially more difficult to monitor.
What Is Revolving Credit and Why Is It Under Review?
Revolving credit generally allows a borrower to access funds up to a predetermined limit, repay part or all of the outstanding amount and then draw the credit again without applying for an entirely new loan each time.
Credit cards are one of the best-known examples of revolving credit. Certain personal credit lines and other flexible borrowing arrangements can also operate on similar principles.
For lenders, such products can create a recurring relationship with customers and provide greater flexibility in managing short-term borrowing needs. For consumers, they can offer convenient access to funds without repeated loan applications.
However, the structure also requires lenders to continuously assess outstanding exposure, repayment behaviour and the borrower’s ability to service debt.
The RBI’s reported interest in the segment comes against the backdrop of concerns over rapidly expanding credit products. NBFCs themselves have reportedly sought further discussions with the central bank over the proposed restrictions, arguing that a broad limitation on revolving credit could affect customer convenience and credit availability.
The final regulatory framework, however, will depend on the RBI’s consultation process and any changes made after considering industry feedback.
Stronger Internal Controls at the Centre of RBI’s Message
One of the central themes of the RBI’s interaction with NBFC executives was the need for stronger internal governance.
The regulator has stressed that compliance should not be treated merely as a procedural requirement. Instead, NBFCs are expected to build systems capable of identifying vulnerabilities before they translate into financial losses, customer harm or broader systemic risks.
Internal audit functions are particularly important in this context. A strong internal audit framework can help identify weaknesses in loan approval processes, customer onboarding, collections, data management, technology systems and compliance procedures.
Risk management also needs to evolve alongside lending models. A product that appears relatively low-risk at the pilot stage can present substantially different risks once it reaches millions of customers.
For NBFCs, this means monitoring not only the performance of individual loans but also trends across customer segments, geographies, products and distribution channels.
The RBI’s emphasis suggests that rapid growth itself should not be considered a substitute for sound risk controls.
Technology-Driven Lending Brings New Regulatory Challenges
NBFCs have often been early adopters of technology-driven financial products. Digital platforms have enabled lenders to acquire customers remotely, assess applications using technology and provide credit through mobile applications and other online channels.
The RBI has acknowledged the industry’s experience in developing such products and indicated that insights from NBFCs could help inform future regulations covering emerging areas.
This consultation-based approach is significant because technology-led lending continues to evolve quickly. Artificial intelligence, automated decision-making, digital identity verification, data analytics and alternative credit scoring are changing how lenders evaluate and serve borrowers.
However, greater reliance on technology also creates risks involving data privacy, cybersecurity, algorithmic decision-making, fraud, third-party service providers and customer consent.
As a result, NBFCs are increasingly required to balance innovation with governance.
Digital Lending Rules and Data Protection Compliance
The RBI has also reminded NBFCs to ensure full compliance with the central bank’s digital lending framework.
Digital lending has become an increasingly important component of India’s credit ecosystem, but the RBI has previously raised concerns around transparency, customer consent, data usage, third-party involvement and lending practices.
For NBFCs, compliance therefore extends beyond simply ensuring that a loan is sanctioned correctly. Lenders must also examine how customers are acquired, how information is collected and processed, how loan terms are communicated and how customers can raise complaints.
The RBI has additionally emphasised compliance with the Digital Personal Data Protection Act as lenders increasingly rely on technology for customer acquisition, underwriting and servicing.
The convergence of financial regulation and data protection is likely to become increasingly important as lenders process larger volumes of customer information through digital channels.
Consumer Grievance Redressal Gets Greater Attention
Customer protection was another important element of the RBI’s discussions with NBFCs.
The regulator has advised lenders to strengthen their grievance-redressal mechanisms and ensure that complaints are resolved effectively within prescribed timelines.
For customers, the quality of grievance handling can be as important as the original lending decision. Problems involving unauthorised transactions, loan servicing, repayment records, digital platforms, recovery practices or data usage can become particularly difficult when customers have limited access to physical branches.
Effective grievance mechanisms can help resolve such disputes before they escalate and can also provide lenders with valuable information about recurring weaknesses in their products and processes.
A stronger feedback loop between customer complaints and internal risk-management teams could consequently help NBFCs identify emerging problems earlier.
SROs Should Complement, Not Replace, Regulation
The role of self-regulatory organisations also featured in the discussions.
The RBI clarified that SROs should not function as parallel regulators. Instead, they should act as the industry’s first line of defence by encouraging compliance, establishing good practices and helping address emerging risks.
The distinction is important. While the RBI remains the statutory regulator, SROs can potentially provide industry-level coordination and promote consistent standards among their members.
An effective SRO framework could help identify common challenges across NBFCs and encourage firms to address weaknesses before they become widespread.
However, the RBI’s reported position makes clear that self-regulation is intended to supplement formal supervision rather than replace it.
RBI Seeks Greater Alignment With Global Standards
The central bank is also looking to bring the regulatory framework for NBFCs more closely in line with global standards, according to the report.
This reflects the growing importance of NBFCs within India’s financial architecture. As these institutions expand in size, product complexity and technological reach, regulatory expectations increasingly need to address risks comparable to those faced by other significant financial institutions.
India’s NBFC regulatory framework has already undergone substantial changes in recent years. The RBI has strengthened prudential requirements, supervisory mechanisms, governance expectations and risk-management standards across different categories of NBFCs.
The current focus on revolving credit and technology-driven products represents another stage in that broader evolution.
The RBI’s existing regulatory framework also places significant emphasis on prudential standards governing NBFCs, including areas such as capital, exposure and risk management.
What the Proposed Changes Could Mean for NBFCs
For NBFCs, the RBI’s latest approach could have implications extending beyond revolving credit itself.
Companies may need to reassess product approval processes, internal controls, technology architecture, customer disclosures and risk-monitoring systems. Products that rely heavily on automated decision-making or flexible credit limits may receive greater scrutiny.
Lenders could also be required to demonstrate that they understand the risks associated with products before scaling them substantially.
This could result in additional compliance costs for some NBFCs. At the same time, stronger controls could help reduce the likelihood of large-scale credit losses, misconduct, operational failures and customer disputes.
For customers, tighter oversight could mean greater transparency and stronger safeguards, although some products may become less flexible if regulatory restrictions are ultimately introduced.
Industry Feedback Could Shape the Final Framework
The RBI’s decision to seek feedback from NBFCs is significant because lenders operating these products have direct experience with customer behaviour, underwriting models and operational challenges.
Industry feedback could help the regulator distinguish between different types of revolving credit products and assess whether a uniform regulatory approach is appropriate.
NBFCs are likely to focus on the potential effect of restrictions on credit availability, customer convenience, product innovation and competition with banks. Recent industry representations show that lenders are seeking further engagement with the RBI over the proposed approach.
For the RBI, the challenge will be to balance innovation and access to credit with financial stability and consumer protection.
A Broader Shift Towards Preventive Supervision
The latest engagement underlines a broader shift in financial regulation towards preventive supervision.
Rather than responding only after risks materialise, regulators increasingly expect financial institutions to identify vulnerabilities in advance. This is especially important in technology-led finance, where a product can achieve substantial scale in a relatively short period.
For the NBFC sector, that means governance, compliance, internal audit and risk management will increasingly need to develop at the same pace as digital innovation.
The RBI’s message is therefore not limited to revolving credit. It signals that NBFCs will be expected to demonstrate stronger control over the entire lifecycle of new financial products—from design and approval to customer acquisition, underwriting, servicing and grievance resolution.
The RBI’s latest interaction with NBFC executives highlights the regulator’s growing focus on the risks associated with rapidly expanding lending products and technology-led business models. By seeking industry feedback on proposed revolving credit rules while simultaneously stressing stronger compliance, internal audit, risk management and consumer protection, the central bank appears to be pursuing a balance between innovation and financial stability.
For NBFCs, the message is clear: technological innovation and rapid product expansion must be accompanied by equally strong governance and risk controls.
The eventual framework governing revolving credit will depend on the RBI’s consultation process and the feedback received from industry stakeholders. However, the wider regulatory direction is already evident. As NBFCs become increasingly important providers of digital and consumer credit, the RBI is placing greater emphasis on early risk identification, responsible innovation, data protection and effective customer safeguards.
The developments could ultimately shape how NBFCs design and distribute flexible credit products in India, while reinforcing the principle that innovation in financial services must operate within a strong framework of compliance, transparency and responsible lending.
