The Reserve Bank of India (RBI) has tightened the rules related to loans. The RBI has proposed to impose restrictions on credit cards and flexi loans offered by non-banking financial companies (NBFCs). This means that companies like Bajaj Finance may stop offering credit cards or have to redesign them.
In this order, non-banking finance companies that have already received special permission from the RBI to issue credit cards will not be affected. After this proposal, the share price of Bajaj Finance fell by 5.84 percent to Rs 1,078 on Friday. Similarly, the share price of L&T Finance has also recorded a decline of 2.73 percent.
What type of loans will be restricted?
The RBI has proposed to impose restrictions directly on ‘revolving credit’. This includes loans with a fixed credit limit. Customers can withdraw money repeatedly, repay it and increase the limit again. Services like credit cards fall under this category.
Term loans will be allowed –
Currently, NBFCs will be allowed to give ‘term loans’ only for a fixed period, in which a fixed amount of money is given and it is repaid according to a fixed EMI or time frame. Once the loan is approved, the loan limit cannot be increased again. This restriction will not apply to NBFCs that are allowed to issue credit cards by the RBI.
What will be the impact of this rule?
Large NBFCs like Bajaj Finance and digital lending apps that provide loan services like ‘Flexi Loan’ or ‘Credit Line’ will have to completely redesign their products. The recurring credit facility available to customers will now be limited. Instead of taking flexi credit, customers will have to take a new term loan every time or will have to rely on credit cards of banks and authorized NBFCs.
Why did RBI take this decision?
There is a specific reason behind this new proposal of RBI. RBI wants to prevent the risk of excessive and uncontrolled credit in the retail sector. Along with this, RBI has proposed to impose restrictions on these loans to bring transparency and soundness in the loan system.
