RBI draft norms on revolving credit hit NBFC stocks; Bajaj Finance slips 6%

NBFC stocks bleed after RBI draft

Shares of non-banking financial companies (NBFCs) took a sharp hit on Friday after the Reserve Bank of India (RBI) released draft norms aimed at tightening revolving credit facilities. The proposed rules spooked investors, with Bajaj Finance leading the decline, falling as much as 6% in intraday trading.

The draft circular, issued late Thursday, seeks to curb the growth of unsecured lending products such as credit cards and revolving credit lines offered by NBFCs. Market participants said the move signals the central bank's intent to rein in consumer over-leveraging, especially in the digital lending space.

What the draft says

While the full text of the draft has not been made public in detail, sources indicate it proposes stricter norms on how NBFCs structure and market revolving credit facilities. These products allow borrowers to draw and repay funds repeatedly up to a sanctioned limit, often with flexible repayment options.

The RBI has been increasingly vocal about the rapid growth in unsecured retail credit, which it views as a potential risk to financial stability. The draft norms are seen as a preemptive measure to prevent a build-up of stress in the system.

Market reaction

The sell-off was broad-based, with several NBFC stocks closing in the red. Bajaj Finance, one of the largest players in the consumer credit space, bore the brunt of the selling pressure. Other lenders with significant exposure to revolving credit products also saw their shares decline.

Investors are concerned that tighter norms could compress margins and slow down loan growth for NBFCs. Analysts said the draft, if implemented in its current form, could force companies to recalibrate their product offerings and underwriting standards.

What it means for borrowers

For consumers, the proposed curbs could mean stricter eligibility criteria for revolving credit facilities. Lenders may also be required to disclose terms more transparently, including interest rates and penalty charges.

Industry insiders said the RBI's move is aimed at ensuring that credit growth does not outpace income growth in the household sector. However, they noted that the final guidelines are likely to be shaped by feedback from stakeholders, which the central bank has invited.

Road ahead

The RBI has not yet announced a timeline for finalising the norms. NBFCs and industry bodies are expected to submit their comments in the coming weeks, and the central bank will review these before issuing the final circular.

Market watchers will be closely tracking any revisions to the draft, as well as the RBI's stance on grandfathering existing facilities. The final outcome could determine whether the sector sees a prolonged period of adjustment or a quicker return to normalcy.