Bajaj Finance Pivots to Term Loans Amid Proposed RBI Revolving Credit Ban

01

Strategic Shift in NBFC Product Design

Bajaj Finance is proactively transitioning its lending portfolio in response to regulatory signals from the Reserve Bank of India (RBI). Starting November 1, the lender will launch new term-loan variants. This move is a direct response to the RBI’s draft circular issued on August 6, which weighs a potential ban on revolving credit facilities offered by Non-Banking Financial Companies (NBFCs).

The transition marks a departure from high-velocity credit lines that allow borrowers to withdraw and repay multiple times within a limit. By shifting to term-loan structures, the lender ensures compliance with the proposed regulatory framework while attempting to retain its customer base within a more rigid repayment schedule. This change suggests that the era of flexible, credit-card-like revolving lines for NBFCs may be nearing an end.

02

Impact on Assets Under Management (AUM)

The scale of this transition is significant for large NBFCs. For Bajaj Finance, revolving credit products account for a substantial portion of its consolidated book. Analysts and leadership indicate that a total ban on these products would lead to a transient impact on AUM growth as the portfolio rebalances toward term-based products.

While the volume of credit disbursed may remain steady, the velocity of capital changes under term-loan structures. The transition period will likely see a slowdown in the 'auto-renewal' nature of credit access, requiring lenders to focus on fresh originations rather than limit top-ups.

03

Margin Compression and Profitability Outlook

Beyond AUM volume, the shift to term loans has implications for Net Interest Margins (NIM). Revolving credit often carries higher yields due to its convenience and the nature of short-term liquidity provision. Transitioning these to term loans typically involves fixed repayment schedules which may offer slightly lower yields or higher operational costs per transaction.

The anticipated impact includes a marginal compression of NIM and overall profitability. However, this is viewed as a necessary trade-off to ensure long-term regulatory alignment. Lenders will need to optimize their cost of funds and operational efficiency to offset these marginal declines in profitability.

The transition from revolving lines to term loans represents a fundamental shift in how NBFCs manage liquidity and interest rate risk at the product level.

Toolyt Pulse analysis

04

Operational Challenges in Unsecured Lending

The proposed ban necessitates a complete overhaul of the loan origination journey. In a revolving credit model, the friction at the point of subsequent drawdowns is minimal. In a term-loan model, each new requirement for funds may necessitate a new loan application, documentation, and disbursement process, depending on how the 'variants' are structured.

Lenders must now focus on:

Redesigning customer onboarding to handle frequent term-loan applications without increasing churn.

Updating credit scoring models to account for fixed EMIs versus flexible repayments.

Ensuring compliance-ready workflows that meet the specific disclosure requirements of term loans.

Managing the asset-liability mismatch that occurs when short-term revolving assets are replaced by longer-tenure term loans.

05

Market Implications for Indian NBFCs

Bajaj Finance’s early move sets a precedent for the rest of the Indian NBFC sector. Smaller NBFCs and Fintech-led lenders who rely heavily on 'Credit Line' products will likely face similar pressures to pivot. The RBI’s stance appears to be focused on systemic stability and ensuring that NBFCs do not operate as 'shadow banks' with products that closely mimic banking credit cards without the same regulatory oversight.

This shift will likely lead to a surge in product innovation within the 'Multi-tranche Term Loan' space. Lenders will seek ways to provide the flexibility of revolving credit—such as scheduled drawdowns—within the legal definition of a term loan to maintain customer experience.

06

What this means for execution

For BFSI decision-makers, execution now shifts from marketing flexibility to managing structured credit cycles. The priority is to automate the transition from revolving lines to term loans to prevent customer attrition. Sales teams need tools that can handle more frequent loan applications with the same speed as a credit line drawdown.

Toolyt Pulse analysis suggests that field force productivity will be critical during this transition, as teams must educate existing customers on the new loan variants. Leveraging platforms like Toolyt can help NBFCs streamline these new term-loan origination journeys, ensuring that compliance-ready workflows are followed while maintaining the high-velocity execution required in the unsecured lending market.