New RBI Circular On NBFCs - What It Means For Borrowers

Key Takeaways
 

• NBFCs are companies that lend money, similar to banks, but they are not full-fledged banks. People go to NBFCs when they need loans to buy things like a car, a mobile phone, or to start a small business.
   
• NBFCs are important because they enable people to access funds quickly, particularly in areas where bank services are limited. 
   
• RBI has issued a Master Circular on 1 April 2025, which explains how banks should give loans to NBFCs (Non-Banking Financial Companies).

The Reserve Bank of India’s circular on NBFCs in 2025 sets rules to ensure transparency and safety in lending. This circular controls how banks lend money to NBFCs and how NBFCs deal with borrowers.

Monika borrowed ₹2,00,000 from an NBFC to renovate her home. The company added hidden charges of ₹7,500 and also forced her to buy an insurance policy she did not need.

With the new rules, NBFCs must clearly state all charges before giving out loans. This means Monika will now know the full cost of borrowing in advance, showing the importance of the circular.

In this blog, we will learn more about the new RBI circular on NBFCs in 2025, its features, and possible challenges for borrowers.

What Are NBFCs?

NBFCs, or Non-Banking Financial Companies, lend money and provide credit just like banks, but they do not hold a banking licence. 

They are popular among individuals and small businesses because they approve loans faster and with fewer requirements than banks. The following table highlights why people prefer NBFCs: 
 

NBFCs are not just an alternative to banks; they bridge a critical gap in India’s financial system. They empower borrowers who are often overlooked, which strengthens the local economies.

Bonus Tip: The RBI applies a 50-50 test to decide if a company is an NBFC. If financial assets exceed 50% of total assets and income from them crosses 50% of gross income, registration as an NBFC becomes mandatory.

New RBI Rules For Banks Lending To NBFCs

On 1st April 2025, the Reserve Bank of India issued a Master Circular to guide how banks should provide loans to NBFCs. Since NBFCs depend on banks for funds, these rules directly impact borrowers too. The aim of this circular is:
 

• To make sure NBFCs use borrowed money safely.
   
• To stop risky lending practices.
   
• To protect borrowers from hidden or unfair terms.

Banks can still fund NBFCs, but only in a structured, responsible way. This ensures borrowers like Monika, Ramesh, or Ankit get fairer and safer loans.

Key Features Of The RBI Master Circular (2025)

The new circular highlights several important changes, which will directly influence how NBFCs operate and how borrowers access credit. The following table highlights the key features of the RBI master circular: 
 

The above-mentioned features of the new Master Circular ensure that NBFC lending remains secure while supporting genuine business and consumer needs. 

Possible Challenges For Borrowers

The new RBI rules are meant to make lending safer, but they may also bring some challenges for people who want to take loans. 

Now, NBFCs have to be more cautious, which can affect the speed and size of loans. The following table highlights the possible challenges for the borrowers:
 

The above-mentioned changes may cause inconvenience to some borrowers, but overall, they increase safety and reduce risks in the lending system.

How The RBI Circular Protects Borrowers In 2025?

The RBI’s 2025 master circular focuses on safer lending and wider credit access. These reforms ensure NBFCs operate responsibly while offering better loan options to borrowers. The following table highlights how RBI circular protects borrowers:
 

The above-mentioned changes are aimed to make borrowing safer and more affordable. Borrowers can expect more choices, lower risks, and better protection in 2025.

Conclusion

The new RBI circular on NBFCs in 2025 is a positive step towards making the lending system safer and more transparent. It ensures that NBFCs and banks follow clear rules when giving loans, which helps protect borrowers from hidden charges and risky lending.

While this means people can expect fairer treatment and better information when taking loans, it might also lead to slower loan approvals and stricter checks. 

Even so, these changes are designed to build trust in the system and make sure loans are given responsibly, helping both lenders and borrowers in the long run.

FAQs

1. What are the changes in banking in 2025?

According to the Business Standard, the 2025 banking law brings stricter governance, tougher audits, and stronger depositor protection for all banks.

2. Which 4 NBFCs are banned by RBI?

According to the ICICI direct, RBI barred Navi Finserv, DMI Finance, Asirvad Micro Finance and Arohan Financial Services from new lending from 21 October 2024.

3. Can a recovery agent visit your house?

Yes, but only during permitted hours and with proper identification as per RBI guidelines.

4. Can two NBFCs co-lend?

Yes, two NBFCs can co-lend to a borrower, following RBI guidelines and agreeing on the loan share, interest rate, and repayment terms.

5. Can NBFC give a credit card?

Yes, NBFCs can issue credit cards if they are authorised by the RBI and comply with all regulatory requirements.

6. Which NBFC licence was cancelled by the RBI?

As per a Press Release, in 2019, the RBI cancelled registration certificates of 25 NBFCs, including N.K. Textile Industries Limited, Gera Leasing & Finance Limited, and Annupriya Finance Limited.

7. Is Tata Capital an NBFC?

Yes. Tata Capital is an RBI-registered NBFC offering loans and financial services.