MUMBAI: Shares of non-banking financial companies (NBFCs) tumbled on Friday, a day after the Reserve Bank of India (RBI) proposed curbs on revolving credit products, with analysts saying the draft rules could slow customer acquisition, weaken loan growth and compress yields for lenders with meaningful exposure.
While Bajaj Finance is seen as the biggest casualty, most brokerages expect the eventual earnings impact to be manageable if lenders redesign products or shift customers to alternative loan structures.
Bajaj Finance, the country’s largest private-sector NBFC and the lender with the highest exposure to flexi-credit products, fell nearly 6 per cent. Tata Capital declined around 3 per cent, while L&T Finance dropped over 2.5 per cent as investors assessed the likely impact on growth, profitability and fee income.
The RBI on Thursday proposed that NBFCs should offer only term loans with a pre-determined repayment schedule, where sanctioned limits cannot be restored once repaid. In effect, the proposal would prohibit flexi-credit products that allow borrowers to repeatedly draw down and repay the same credit line. Credit cards issued by RBI-authorised issuers and bullet repayment loans have been kept outside the proposal. The central bank has invited comments until August 28.
The move is aimed at curbing evergreening risks, where borrowers service loans through fresh drawdowns rather than genuine cash flows, according to analysts. Unlike banks, NBFCs generally lack visibility into borrowers’ operating cash flows, making such practices harder to detect. Brokerages expect Bajaj Finance to be the most affected. IIFL Capital estimates flexi-credit products account for about 15 per cent of its consolidated assets under management and nearly 20 per cent of its standalone loan book.
Tata Capital’s exposure is estimated in the high single-digit to low double-digit range, while exposure at Cholamandalam Investment and Finance is below 1 per cent. L&T Finance and Poonawalla Fincorp have negligible exposure.
The proposed norms can impact new customer acquisition, growth and customer stickiness, especially for NBFCs with meaningful exposure to such products, said Viral Shah, analyst at IIFL Capital. Higher-yielding flexi-credit products also support fee income, implying some pressure on profitability, although lenders could partly offset this by introducing prepayment charges on replacement products. Shah added that NBFCs could also redesign products so that every incremental borrowing is treated as a fresh loan assessment and disbursement.
According to Suresh Ganapathy, managing director and head of financial services research at Macquarie Capital, investors will focus on whether Bajaj Finance revises its FY27 loan growth guidance of 22-24 per cent if it is forced to shrink its flexi-loan portfolio. He added that uncertainty also remains over whether products such as supply-chain financing will fall within the scope of the final rules.
PL Capital, in a note, said that “any reusable credit line, overdraft facility or flexi-loan product offered by NBFCs across corporate, MSME and unsecured personal loan segments is likely to be impacted.” The proposed amendments would require lenders to restructure existing revolving credit products, with implications for customer proposition, fee income and product economics, it further said, adding that “diversified NBFCs are likely to be better placed to mitigate the disruption through alternative product offerings” once the final guidelines are issued.
The brokerage estimates Bajaj Finance’s flexi-loan portfolio at around ₹70,000 crore, or 13 per cent of its assets under management, concentrated in unsecured business, MSME, personal and B2C lending. Even assuming these loans earn a 100-basis-point yield premium over conventional term loans, PL Capital estimates only a 13-basis-point impact on the company’s overall net interest margin.
Jefferies estimates flexi loans account for around 14 per cent of Bajaj Finance’s portfolio and generate nearly 50 basis points of incremental yield. It expects only a 1 per cent-1.5 per cent hit to earnings per share, suggesting Friday’s share-price decline was larger than the likely earnings impact.
The proposal could also erode fee income, as revolving products generate charges on repeated drawdowns. Bajaj Finance reported fee income of ₹2,653 crore in the quarter ended June 2026, while Tata Capital earned around ₹1,090 crore.
“While the regulatory intent — curbing risk, preventing evergreening and strengthening borrower protection — is well-founded, demand for revolving credit, particularly given borrowers’ uncertain cash flows, and the transparency with which such products are structured may merit deliberation during the consultation period,” a Citigroup analyst said.
Source: Business Standard
