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In February 2026, the Reserve Bank of India (RBI) issued draft amendment directions to the RBI (Non-Banking Financial Companies – Registration, Exemptions and Framework for Scale Based Regulation) Directions, 2025 ("Directions"). The draft has been released for public comments and is proposed to come into effect from 1 April 2026. The key objective is to provide regulatory relief to certain lowrisk NBFCs while maintaining supervisory oversight.
Position Under the Existing Framework
If a company meets the 'principal business' criteria, it is generally required to obtain a certificate of registration (CoR) from the RBI, unless it falls within a specific exemption category. Even NBFCs that were relatively low-risk—i.e., those not taking public funds and not having any customer interface—were still required to hold a CoR and were regulated under the Directions. Such entities were classified within the lowest regulatory layer under the Directions and are commonly referred to as 'Type I NBFCs'. As registered NBFCs, they are subject to ongoing compliance and supervisory requirements.
Key Proposed Changes
The draft amendments propose a significant change for certain non-deposit-taking NBFCs. The RBI has proposed that certain NBFCs may be exempt from the requirement of obtaining and holding a CoR, provided the following conditions are satisfied:
- The NBFC does not avail public funds and does not intend to avail public funds.
- The NBFC does not have a customer interface and does not intend to have a customer interface.
- The asset size of the NBFC is below INR 1,000 crore.
Such entities are proposed to be treated as 'Unregistered Type I NBFCs'.
It is important to note that this exemption is limited only to the registration requirement. These entities will continue to remain subject to other applicable provisions of the RBI Act, 1934 for supervision and enforcement.
The draft and related FAQs also clarify the meaning of 'public funds' and 'customer interface', which is critical for determining eligibility:
- Loans from directors and/or shareholders are proposed to be treated as 'public funds', as they constitute outside liabilities.
- Indirect receipt of public funds is specifically covered within the explanation of 'public funds'. If funds are routed through associates or group entities that themselves have access to public funds, such funds may be treated as indirect public funds.
- 'Customer interface' is interpreted broadly. Any customer-oriented activity—such as lending or providing guarantees, including to group entities, shareholders, or directors—is treated as customer interface. A limited carveout is provided for employee loans given strictly under employment terms and not on commercial terms.
- Type I NBFCs and Unregistered Type I NBFCs are not permitted to undertake customerfacing distribution activities (for example, mutual fund distribution, insurance agency, credit card distribution), as these inherently involve customer interface.
The draft further clarifies that NBFCs with no public funds and no customer interface but with an asset size of ₹1,000 crore or more will be required to apply for registration as a 'Type I NBFC'.
If an Unregistered Type I NBFC (or a Type I NBFC) intends to access public funds and/or have a customer interface, it must first obtain RBI approval and registration in the appropriate category (including as a 'Type II NBFC', where applicable). In other words, a change in the business model cannot precede regulatory approval.
For existing registered NBFCs, a transition window has been proposed. Eligible NBFCs, including Type I NBFCs as of 1 April 2026, may apply for deregistration within six months. The application is proposed to be made through PRAVAAH, supported by prescribed documents. The RBI will consider deregistration based on its satisfaction that the NBFC has adopted a conscious and durable business model of operating without public funds and without customer interface.
Even after exemptions, certain ongoing requirements are proposed for Unregistered Type I NBFCs. These include compliance confirmations that the eligibility conditions continue to be met, along with boardlevel oversight and appropriate disclosures. In addition, if such an entity intends to undertake overseas investment in the financial services sector, it would be required to obtain registration and comply with the applicable regulatory framework.
Impact on Business
The proposed framework offers regulatory relief for genuinely lowrisk captive entities. Groups with pure treasury or investment holding companies operating solely on owned funds, and not engaged in lending, guarantees, or financial product distribution, may benefit from reduced compliance associated with maintaining an RBI CoR. However, determining eligibility will require careful structuring and ongoing monitoring.
Existing registered Type I NBFCs will need to make a strategic decision on whether to continue as registered entities or to apply for deregistration within the proposed timeline. This decision should be aligned with forwardlooking business plans. If there is any likelihood of accessing borrowings or engaging in customerfacing activities in the future, deregistration may lead to additional regulatory steps later, including the need to obtain Type II registration before changing the business model.
Growth planning will also be important for entities approaching the ₹1,000 crore asset threshold.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.
