Analyzing The RBI (NBFC – Registration, Exemptions and Framework for Scale Based Regulation) Amendment Directions, 2026

Introduction

On February 10, 2026, the Reserve Bank of India (“RBI”) introduced draft amendments to the RBI (Non-Banking Financial Companies – Registration, Exemptions and Framework for Scale Based Regulation) Directions, 2025 (“Draft Amendment”)^[1]. The Draft Amendment proposes to exclude certain low-risk NBFCs from the mandatory registration criteria under Section 45-IA of the RBI Act, 1934 (“RBI Act”)^[2], while tightening the definitional barrier for that relief. Open for public comment until March 4, 2026, it is proposed to take effect from April 1, 2026.

The move succeeds the RBI’s Scale-Based Regulation framework of 2021 (“SBR Framework”), which, while being appreciated for bringing structure to a dispersed sector, swept even small, closed-loop entities under the ambit of registration solely because they met the main business criteria (financial assets and income each exceeding 50%)^[3]. Captive treasury vehicles, intra-group funding structures, and family investment holding companies found themselves overburdened with regulatory compliances that had little to no relation to the risk they posed^[4]. The Draft Amendment proposes to rectify that.

What the Draft Amendment Actually Changes

1. A New Three-Way Classification

The Draft Amendment replaces the earlier bifurcation of ‘registered’ versus ‘exempt’ with a cleaner three-tier structure:

• Type I NBFCs are entities that neither access public funds nor have a customer interface, and hold a Certificate of Registration (“CoR”), which is compulsory for those with assets of INR 1,000 crore or more.  

• Unregistered Type I NBFCs meet the same requirements but have assets below INR 1,000 crore; these entities are excused from registration from April 1, 2026.  

• Type II NBFCs are conventional lenders that access public funds or deal with customers; full registration and regulatory obligation continue to apply.

2. De-Registration for Existing Entities

Entities currently holding a Type I CoR with assets below INR 1,000 crore are not automatically revoked. They must file an application through the PRAVAAH portal by September 30, 2026, submitting three years of audited financial statements, a statutory auditor's certificate, and a board resolution containing future-oriented undertakings^[5]. The process also provides an opportunity for NBFCs that were registered prior to the introduction of the ‘Type I’ category in 2016 to regularize their status. Such NBFCs may meet the eligibility criteria in substance but may not formally hold a corresponding CoR

3. Group-Level Asset Aggregation

FAQs clarify that the assets of Unregistered Type I NBFCs will be excluded from group-level collection for Middle Layer determination^[6]. For large conglomerates with multiple financial vehicles, this means that isolated subsidiaries will not expand the group's regulatory footprint, a structuring benefit worth evaluating closely.

The RBI's Counterbalancing Moves

What makes the Draft Amendment fascinating is that the relaxations are combined with enhanced risk safeguards. The definition of ‘public funds’ is broadened to cover funds routed indirectly through associate or group entities, and the FAQs clearly bring loans from directors and shareholders within its scope. This cuts against traditional company law logic, which treats director deposits as a distinct and permitted category under the Companies Act, 2013.^[7]

Similarly, ‘customer interface’ is now expanded to cover lending to or providing guarantees for group entities, shareholders, or directors. The idea is sensible to prevent NBFCs from claiming a closed-loop status while quietly functioning as intra-group lenders. But the drafting is broad enough to catch regular treasury operations. Most of the entities that the Draft Amendment is designed to address are precisely those engaged in intra-group cash management and they may find themselves on the wrong side of these definitions unless balance sheets are carefully reorganized.

Crucially, waivers from registration does not mean exemption from the RBI’s oversight. Unregistered Type I NBFCs remain dependent on Chapter IIIB of the RBI Act, must pass an annual board resolution on their non-public, non-customer-facing status, disclose their exempt status in financial statements, and file exception reports if conditions are breached^[8]. Those aiming to make overseas investments in financial services must first obtain a CoR, preserving the RBI's macro-prudential oversight over cross-border flows.

Analysis and Conclusion

The Draft Amendment is a much needed meaningful and overdue intervention. For over a decade, a subset of NBFCs have borne compliance costs in proportion to the risk they represent. The RBI has now drawn a clear line: if an entities operation does not involve public money and has no customer-facing operations, mandatory registration creates problems without adding safety. That said, dual tensions in the draft merit attention. Firstly, the expanded definitions of 'public funds' and 'customer interface' risk undermining the very relief on offer particularly for intra-group treasury vehicles, which is the most obvious class of intended beneficiary under the Draft Amendment. Secondly, the three-year historical balance sheet test offers no clear pathway for entities currently in transition, leaving a gap that may strand some applicants.  

On balance, the RBI is indicating that it wants to supervise smarter rather than simply wider concentrating oversight where consumer and systemic risk reside. The test will be whether the final notification sharpens the definitional edges enough to make the exemption genuinely accessible. Boards and compliance teams would be well advised to start that analysis now.

References

[1] Reserve Bank of India, 'Draft RBI (Non-Banking Financial Companies – Registration, Exemptions and Framework for Scale Based Regulation) Amendment Directions, 2026' (RBI, 10 February 2026)

[2] Reserve Bank of India Act 1934, s 45-IA

[3] Scale Based Regulation (SBR): A Revised Regulatory Framework for NBFCs RBI/2021-22/112 DOR. CRE REC. No.60/03.10.001/2021-22 (RBI, 22 October, 2021)

[4] Mondaq, RBI Notifies Draft RBI (NBFC –Registration, Exemptions And Framework For Scale Based Regulation) Amendment Directions, 2026

[5] Supra Note 1

[6] All you wanted to know about NBFCs (February 10, 2026)

[7] Companies Act 2013, s 73 and s 76.

[8] Reserve Bank of India Act 1934, Chapter IIIB.

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