RBI NBFC Exemptions and Registration Framework

RBI’s New Framework for NBFCs: A Shift in Regulatory Approach

The Reserve Bank of India (RBI) has introduced a revised regulatory framework for Non-Banking Financial Companies (NBFCs), effective 1 July 2026, aiming to reduce the compliance burden for passive entities and promote a more streamlined regulatory approach.

• The RBI has created a distinction between Type I, Type II, and Unregistered Type I NBFCs, with Type I exempting entities without public funds and customer interface from mandatory registration.
• Existing NBFCs may surrender their registration by 31 December 2026 if eligible, and entities with an asset size below ₹1,000 crore may remain unregistered.
• The framework introduces group aggregation for asset thresholds, mandates disclosures, board resolutions, and auditor oversight, and retains supervisory and penal powers for the RBI.

This new framework is expected to benefit family offices, promoter holding entities, and passive investment vehicles, while also simplifying promoter investment structures and reducing compliance costs.

Summary: The RBI Amendment Directions, 2026 introduce a revised regulatory framework for Non-Banking Financial Companies (NBFCs), effective 1 July 2026, creating a distinction between Type I, Type II, and Unregistered Type I NBFCs. Entities without public funds and customer interface may now qualify for exemption from mandatory registration under Sections 45IA and 45IC, subject to conditions including asset size below ₹1,000 crore and ongoing compliance requirements. Existing NBFCs may surrender their registration by 31 December 2026 if eligible. The framework clarifies definitions of “public funds” and “customer interface,” introduces group aggregation for asset thresholds, and mandates disclosures, board resolutions, and auditor oversight. While exemptions reduce compliance burden for passive entities such as holding companies or investment vehicles, RBI retains supervisory and penal powers. The circular also restricts overseas investments for unregistered entities and emphasizes careful evaluation before deregistration based on business plans and regulatory implications.

FAQs on RBI Amendment Directions, 2026 (For Readers, Promoters, Existing NBFCs)

Pursuant to Reserve Bank of India (Non-Banking Financial Companies – Registration, Exemptions and Framework for Scale Based Regulation) Amendment Directions, 2026

Effective from: 1 July 2026, an endeavor is made to prepare frequently Ask Questions for readers, Promoters, Existing NBFCs as under:

Ans. RBI has introduced a new regulatory framework for NBFCs that do not accept public funds and do not have customer interface. Such entities may now get exemption from compulsory registration under Section 45IA of RBI Act if certain conditions are met.

Ans. Customer interface generally means dealing with customers directly such as:

If an entity has no direct public/customer dealings, it may qualify.

Ans. Public funds include borrowings or funds raised from banks, financial institutions, debentures, deposits, inter-corporate borrowings etc. RBI has clarified that indirect receipt through associates/group entities may also be treated as public funds.

Ans. Type I NBFC means:

(a) NBFC not availing public funds

(b) no customer interface

(c) holds RBI Certificate of Registration as Type I NBFC

Ans. All other RBI registered NBFCs (those with customer interface and/or public funds) shall be treated as Type II NBFCs.

Ans. It means an eligible NBFC operating without public funds and customer interface, exempted from registration under Sections 45IA and 45IC.

Ans. Yes. Existing eligible NBFCs, including presently registered Type I style NBFCs, may apply to RBI for deregistration if they satisfy exemption criteria. Application window is within six months i.e., by 31 December 2026.

Ans. Likely required:

(b) Last 3 years audited financials

(c) Statement of public funds/customer interface for last 3 years

(d) Statutory Auditor certificate

(f) Board undertaking for disclosures

Application through PRAVAAH portal.

Ans. Yes, if genuinely operating without public funds and customer interface as a conscious long-term business model. RBI may examine intent and substance.

Ans. If asset size is below ₹1,000 crore, eligible entity may remain unregistered.

If asset size is ₹1,000 crore or above, registration as Type I NBFC becomes mandatory.

Ans. Yes. If multiple Unregistered Type I NBFCs exist in same group, their asset sizes may be aggregated. If combined size reaches ₹1,000 crore or more, all may need registration.

Ans. Possibly yes, if:

This may benefit family offices, promoter holding entities, treasury companies, passive investment vehicles.

Ans. Potentially yes, subject to no public funds/customer interface and satisfying principal business tests. Case-specific review needed.

Ans. Even exempt entities must:

(a) pass annual Board Resolution at beginning of FY

(b) disclose status in Notes to Accounts

(c) maintain no public funds/customer interface

(d) face penal action if conditions breached

No. Exemption is mainly from Sections 45IA and 45IC. RBI still retains powers under RBI Act and can issue directions or penal action.

Ans. Auditors must submit Exception Report to RBI if entity violates conditions regarding:

(b) customer interface

(c) exemption eligibility

Ans. Not freely. It must first obtain registration and comply with RBI approval framework.

Ans. No, circular specifically restricts such overseas investment by Unregistered Type I NBFC.

(a) reduce regulatory burden

(b) help dormant NBFC exits

(c) simplify promoter investment structures

(d) lower compliance costs

(e) separate passive NBFCs from active lending NBFCs

Ans. Not automatically. Need review of:

(a) future borrowing plans

(b) future lending/customer plans

(d) M&A value of NBFC license

(e) tax and FEMA strategy

(f) business expansion roadmap

Professional review recommended.

(b) CIC / investment NBFCs

(c) promoter holding entities

(d) group treasury vehicles

(e) NBFCs planning merger/closure

(f) NBFCs with zero borrowers/public funds

(a) Review asset size

(b) Check any public funds exposure

(c) Check customer interface model

(d) Examine group entities

(e) Decide retain CoR vs surrender

(f) Prepare board note

(g) Auditor certification readiness

(h) PRAVAAH filing strategy

RBI Amendment Directions, 2026 (Applicable from 1 July 2026)

To manage systemic risk, the layers, based on asset size, activity, and risk, are: Base Layer (NBFC-BL), Middle Layer (NBFC-ML), Upper Layer (NBFC-UL), and Top Layer (NBFC-TL) Eligible NBFCs may now remain unregistered if conditions are fulfilled. Major relaxation for small passive NBFCs. 3 Type I NBFC Base Layer: Non-deposit-taking NBFCs with an asset size below ₹1,000 crore, along with NBFC-P2P (peer-to-peer), NBFC-AA (account aggregators), NOFHC (non-operative financial holding companies), and those with no public funds and no customer interface.

Earlier, No category like Type I NBFC is defined Registered NBFC with no public funds and no customer interface. Separate compliance identity created. 4 Type II NBFC (i) Middle Layer (NBFC-ML):

All deposit-taking NBFCs (NBFC-D) regardless of asset size, non-deposit-taking NBFCs with assets of ₹1,000 crore or more, standalone primary dealers (SPD), infrastructure debt funds (IDF-NBFC), core investment companies (CIC), and housing finance companies (HFC).

(ii) Upper Layer (NBFC-UL): NBFCs specifically identified by the RBI using a scoring methodology for their systemic impact, including the top 10 NBFCs by asset size.

(iii) Top Layer (NBFC-TL): Deemed to pose extreme systemic risk by the RBI.

Earlier, No category like Type II NBFC is defined All other registered NBFCs fall under Type II NBFC. Traditional lending NBFCs continue under stricter regime. 5 Unregistered Type I NBFC No structured concept. Eligible passive NBFC exempt from Sections 45IA & 45IC. Useful for holding/investment entities. 6 Asset Size Threshold No specific ₹1,000 crore threshold for this exemption structure. Exemption available only if asset size is below ₹1,000 crore. Large entities still need RBI registration. 7 If Asset Size Reaches ₹1,000 crore+ No direct conversion framework. Mandatory registration as Type I NBFC. Growing groups must monitor assets yearly. 8 Group Aggregation Less explicit. Multiple Unregistered Type I NBFCs in same group will be aggregated for ₹1,000 crore test. Stops fragmentation through multiple companies. 9 Existing Registered Passive NBFCs Continued as registered NBFCs. May apply for deregistration by 31 Dec 2026 if eligible. Exit route for dormant/inactive NBFCs. 10 Application Mechanism No specific streamlined surrender path in this format. Application through PRAVAAH portal with prescribed documents. Formal online process introduced. 11 Required Documents Case-based. Original CoR, 3 years audited accounts, auditor certificate, board resolution etc. Documentary discipline increased. 12 Public Funds Definition Existing meaning applied. RBI clarified indirect funds via associates /group entities also count. Anti-avoidance clarification. 13 Customer Interface Test Existing concept but less emphasized in this framework. Explicit future intention test also applies. Entity must not intend customer interface in future. Forward-looking scrutiny. 14 Annual Board Resolution Not specifically mandatory for exempt class. Annual Board Resolution at beginning of FY mandatory for Unregistered Type I NBFC. Governance compliance required. 15 Notes to Accounts Disclosure Limited specific disclosure. Must disclose status as Unregistered Type I NBFC + public funds /customer interface status. Transparency enhanced. 16 Auditor Reporting Standard audit obligations. Auditors must file Exception Report to RBI on breach of exemption conditions. Auditor accountability significantly increased. 17 Overseas Financial Sector Investment No specific carve-out for unregistered passive NBFCs. Unregistered Type I NBFC must first register and obtain approvals. Overseas expansion restricted. 18 Overseas Non-Financial Investment No express rule in this framework. Specifically prohibited for Unregistered Type I NBFC. Important FEMA/ structuring implication. 19 RBI Supervisory Powers Applicable to registered NBFCs mainly. RBI retains powers even over exempt Unregistered Type I NBFCs. Exemption ≠ immunity. 20 Penal Consequences Under existing RBI Act. Violations by Unregistered Type I NBFC will be viewed seriously and penal action possible. Strong deterrence. These FAQs are simplified guidance. Final applicability depends on facts, group structure and RBI interpretation.

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