Summary of this article
RBI has proposed exemption for small NBFCs
Applies to firms below Rs 1,000 crore assets
Registration required if public funds are accessed
The Reserve Bank of India (RBI) has proposed to exempt certain non-banking financial companies (NBFCs) having assets less than Rs 1,000 crore from mandatory registration on the condition that they do not avail public funds or have customer interface.
The proposal has been issued through a draft amendment direction to the Reserve Bank of India (Non-Banking Financial Companies - Registration, Exemptions and Framework for Scale Based Regulation) Directions, 2026. The central bank has invited public comment on the same until March 4, 2026.
Who Has Been Covered By The Exemption
According to the draft, NBFCs that do not access public funds, do not deal directly with customers, and have an asset size of less than Rs 1,000 crore, have been proposed to be exempted from registration under section 45IA of the Reserve Bank of India Act, 1934.
At present, such entities are required to get a certificate of registration from the RBI. The draft has stated that all eligible companies will be exempted from this requirement, with effect from April 1, 2026. These entities have been referred to as 'Unregistered Type I NBFCs'.
The exemption has been proposed to be granted under section 45NC of the RBI Act, 1934, subject to conditions specified by the RBI.
Rationale for the Proposal
RBI has stated that these NBFCs have operated without raising funds from the public and without having a customer interface. They have generally pursued investments with their own funds. Because of this structure, the regulator expressed that concerns relating to systemic risk and customer protection have not been significant in their case.
The central bank has noted that these entities have had a different risk profile compared to the other NBFCs that borrow from the public or lend directly to customers.
Requirement If Business Model Changes
These draft directions have also clarified that any 'Unregistered Type I NBFC' intending to avail public funds or introduce customer interface in future will be required to seek registration with RBI as a 'Type II NBFC', before undertaking such activities.
RBI has made it clear that non-registration before accessing public funds or dealing with customers can attract penal action under the provisions of the RBI Act.
The draft has also outlined the procedure for de-registration or conversion of existing NBFCs that have currently fallen under this category, including those holding a certificate of registration as 'Type I NBFC'.
Position Under The Scale-Based Framework
Under the Scale-Based Regulatory Framework introduced in October 2021, NBFCs have been categorised on the basis of asset size and systemic importance into base layer, middle layer, upper layer and top layer.
Currently, NBFCs which have not availed public funds and have not had customer interface have been put in the base layer and have been subjected to relatively lighter compliance requirements. The proposed exemption from registration for those with assets below Rs 1,000 crore has further brought regulatory obligations in line with their size and risk profile.
RBI has invited feedback from the NBFCs, members of the public and other stakeholders through its website or by email. Comments are being solicited until March 4th 2026.
