RBI Raises Concerns Over Perpetual Credit Lines By NBFCs

Reserve Bank of India has conveyed its discomfort with non-bank lenders who offer perpetual lines of credit to customers. According to two people who spoke with NDTV Profit, the regulator has raised issue with products where customers have the ability to dip into credit lines without fixed repayment schedules.

A perpetual line of credit involves loan windows for borrowers where they can borrow as much as they like from the lender within a specified limit. Such borrowers can repay their dues in part or in full, as and when they have the cashflow available to do it. They may also continue to pay interest dues for as long as they wish, without the account becoming a non-performing asset.

The issue here is that a borrower may repay dues by further dip into the credit lines available to them and repay previous dues. RBI feels that such perpetual lines of credit may encourage behaviour, which may be classified as evergreening of loans, the two people quoted above said.

As such, these loans may mirror cash credit loans by banks, which NBFCs are not licensed to do. Borrowers may range from salaried individuals, small business owners to self-employed borrowers.

Economic Times newspaper first reported that RBI had raised such concerns. According to the paper, NBFCs have extended between Rs 50,000–60,000 crore as loans to such borrowers.

RBI has previously raised concerns about rollover credit products offered by fintechs as well. In 2022, RBI paused the issuance of prepaid payment instruments by fintechs, being sold as a credit card alternative. Here too, the card was backed by a credit line which could be rolled over by the borrower by paying interest on the credit availed. Customers could then repay the credit line, as per their convenience.