Revolving credit has become an essential financial tool in India, especially for rural households with seasonal incomes and exposure to financial shocks. It allows borrowers to access funds within a preset credit limit and repay them in instalments, providing a cushion during lean periods and reducing dependence on informal lenders.
However, the Reserve Bank of India (RBI) is concerned about risks linked to excessive use of revolving credit, particularly debt recycling, where borrowers use new loans to pay off existing debts.
The RBI's new rules aim to promote responsible lending and borrowing while protecting consumers and ensuring financial stability. Credit card issuers will face stricter rules on revolving credit, including caps on carry-forward amounts and enhanced transparency on terms and costs. These changes will require issuers across India to revise their products and customer communications. For borrowers, the rules highlight the importance of understanding interest charges, repayment terms, and the risks of continually rolling over balances.
