RBI Amendments 2026: A New Category for NBFC Registration and Exemptions

The Reserve Bank of India (“RBI”) vide its notification dated November 28, 2025, has unveiled amendments titled as ‘Reserve Bank of India (Non-Banking Financial Companies-Registration, Exemptions, and Framework for Scale Based Regulation) Directions, 2026’ (“Directions”) which has marked a significant shift in the regulatory framework for Non-Banking Financial Companies (“NBFCs”).

Pursuant to a review of the regulatory position applicable to NBFCs that neither avail public funds nor have any customer interface, the RBI has further amended the Directions through the RBI (Non-Banking Financial Companies- Registration, Exemptions, and Framework for Scale Based Regulation) Amendment Directions, 2026 (“Amendment Directions”), effective April 1, 2026.

The Amendment Directions introduce a new category of NBFCs-entities with no public funds and no customer interface- which are exempt from mandatory registration under Section 45-IA of the Reserve Bank of India Act, 1934, subject to compliance with prescribed conditions. This represents a calibrated departure from the traditionally stringent regulatory approach applied to the sector. By adopting a ‘light-touch’ framework for such entities, particularly private investment vehicles, the RBI aims to focus supervisory attention on systemic risks while facilitating ease of doing business.

This article examines the classifications and eligibility conditions for the newly introduced categories under NBFCs framework, the process for registering unregistered entities as Unregistered Type I NBFCs, the procedure for surrendering certificates of registration by existing NBFCs that now fall within the Unregistered Type I NBFC category, and the opportunities for existing business models as well as the challenges arising from the introduction of this new category.

Rationalizing Classification: The Three-Tier Model

In the Amendment Directions, the RBI introduced a new classification for NBFCs that neither accept public funds (including indirect funds) nor have customer interface and have assets size less than INR 1,000 crores, termed as “Unregistered Type I NBFCs”. Two additional categories were also introduced.

The table below summarizes each category, whether it accepts public funds or has customer interface, the applicable asset-size threshold, and whether RBI registration is required.

New NBFC Categories

Regulatory “Guardrails”

The RBI uses Public Funds and Customer Interface as the two key regulatory guardrails to determine the level of regulatory oversight required for Unregistered Type I NBFCs. Both the terms were already defined under the Directions.

Customer Interface refers to any interaction between the NBFC and its customers in the course ofbusiness. This includes:

✓ Lending activities

✓ Provision of guarantees

✓ Financial services to group entities

✓ Transactions involving shareholders or directors

However, loans extended to employees strictly in accordance with employment terms and on a non-commercial basis are not regarded as constituting a customer interface.

Public Funds refers to funds received from external sources, constituting outside liabilities.
Loans from directors and/or share are treated as public funds. Entities that neither engage with external customers nor raise public funds are considered to pose minimal consumer protection and systemic risk concerns.

The Amendment Directions clarify those indirect public funds-that is, funds received through associates or group entities which themselves have accepted public funds-will also be regarded as public funds for regulatory purposes.

The Path to Becoming “Unregistered Type I” for existing NBFCs

The process of operating as an Unregistered Type I NBFC is streamlined and closely resembles the incorporation of a regular company. However, it remains subject to strict ongoing compliance requirements.

Foundational Conditions: To qualify, the following baseline conditions must be met:

• No customer interface
• No public funds, including indirect public funds
• Asset size below INR 1,000 crore

Compliance Requirements: In addition, the company must adhere to the following compliances:

• Annual Board Resolution: The board of directors (“Board”) must pass a formal resolution each year confirming that the company has neither accessed public funds (directly or indirectly) nor engaged in any customer interface activities.
• Auditor Certification: The statutory auditor must explicitly disclose in the annual audit report that the company qualifies and operates as an Unregistered Type I NBFC.

The auditor’s reporting requirement serves as a critical compliance safeguard under the Amendment Directions. It ensures independent verification of the company’s eligibility and continued adherence to the prescribed conditions.

Exit Gate: Surrender of License for Existing registered NBFCs with Zero Customer Interface and Public Funds

Existing registered NBFCs that fit the new ‘Unregistered’ criteria have a one-time window to surrender their Certificate of Registration (“CoR”) which is opened till September 30, 2026. The applications can be submitted via the PRAVAAH portal.

Requirements: The application for deregistration is accompanied with the following set of documents:

✓ 3 years of audited financial statements along with the status of public fuds and customer interface for the last three financial years; and

✓ a Statutory Auditor’s Certificate (SAC).

Please note that physical surrender of the CoR is required to be submitted with RBI.

The Board of such NBFCs must provide an undertaking to disclose the its status as an Unregistered Type I NBFC and pass a resolution confirming that it has no intention to access public funds or engage with customers in the future and agree to obtain registration as a Type II NBFC if it accesses public funds or has customer interface, or its asset size exceeds INR 1,000 crore whichever happens first.

In addition, the category of Unregistered Type I NBFC and status of public funds and customer interface needs to be disclosed as parts of notes to accounts to the financial statements.​

Principal Business Test and Emerging Complexities

A company is considered a NBFC if its principal business is financial activity. The status of such financial activity is determined using the well-known ‘50-50 Test’, which requires that:

• Financial assets constitute more than 50% of total assets (net of intangible assets); and
• Income from financial assets constitutes more than 50% of gross income.

In cases where a company satisfies the above test but has not obtained NBFC registration, Statutory Auditors traditionally qualify their reports-particularly for investment companies that meet the 50-50 threshold. However, complications arise when a company technically qualifies under the 50-50 test but does not clearly demonstrate financial activity as its principal business. Now such entities fit into the category of Unregistered Type I NBFCs which is a valid categorization that can function like NBFCs but remain outside the formal registration framework.

However, there is also potential for companies to structure parallel financial and non-financial activities, adjust their balance sheet composition at year-end to remain within prescribed thresholds, and effectively operate in the nature of NBFCs without formal registration. This raises the possibility of regulatory arbitrage and supervisory gaps.

A New Avenue for Family Offices

Generally, family offices in India structured their investment activities through private trusts, Alternative Investment Funds (AIFs), or NBFCs registered with the RBI, depending on the nature and scale of operations. Under the revised Directions, eligible entities-such as investment vehicles that neither access public funds nor engage in any customer interface-may operate through a corporate structure without seeking RBI registration, subject to compliance with the prescribed conditions.

While this framework does not create a separate ‘family office’ category, it effectively provides greater structuring flexibility for single-family investment entities operating purely with internal capital. In that sense, the reforms move Indian regulatory practice closer to global approaches that adopt proportionate regulation for non-systemic, proprietary investment structures.

Regulatory and Compliance Concerns

While the Amendment Directions significantly reduce the compliance burden for eligible NBFCs, they also give rise to potential regulatory and supervisory challenges. Monitoring compliance with Anti-Money Laundering (AML) requirements and ensuring effective oversight within the credit information framework may become more complex where entities operate outside the registration regime. In addition, supervisory constraints, the risk of regulatory arbitrage, and practical difficulties in determining a company’s true principal place of business may emerge.

There is also a possibility that companies may structure their financial activities in a manner that enables them to conduct transactions during the year while technically avoiding the thresholds of public funds and customer interface, thereby qualifying as Unregistered Type I NBFCs at the end of the financial year. Such structuring could pose challenges for regulators in maintaining effective oversight and safeguarding financial system integrity.

Conclusion

The RBI’s Amendment Directions mark a bold step toward a more mature and responsive financial market. By de-regulating entities that undertake investments primarily out of their own funds-particularly investment vehicles with no customer interface, the RBI is fostering an environment aligned with emerging business models in this sector. This initiative reflects the central bank’s broader strategy of balancing financial stability with ease of doing business, ensuring that regulation remains proportionate to actual risk exposure.

However, the onus of compliance has shifted significantly to statutory auditors and Boards, who must now act as the primary gatekeepers of these unregistered entities.

As India’s NBFC sector continues to expand and diversify, these amendments have the potential to reshape the operational landscape for smaller firms, family offices, investment holding entities, group treasury companies, and other entities within large corporate groups. By reducing unnecessary regulatory burdens while preserving oversight, the framework can strengthen the financial ecosystem-enabling entities to structure their financial activities more efficiently while remaining aligned with regulatory expectations.

Authors:

Ms. Avantika Shukla (Senior Associate)

Mr. Aditya Kamboj (Associate)