RBI Draft Amendment Directions 2026: A Move Toward Proportionate NBFC Regulation—With Caveats

The Reserve Bank of India (RBI) has issued the Draft Reserve Bank of India (Non-Banking Financial Companies – Registration, Exemptions and Framework for Scale Based Regulation) Amendment Directions, 2026(“Draft Directions”), inviting public comments by March 4, 2026.

The draft proposes a targeted recalibration of the NBFC regulatory framework, particularly for smaller, low-risk entities, by introducing a pathway for exemption from registration for select NBFCs. While the policy direction is clearly aligned with risk-based and proportional regulation, certain accompanying clarifications (FAQs) may require refinement to ensure that the intended relief is not diluted in practice.

Key Proposals Under the Draft Directions:

1. Exemption From Registration for Select NBFCs:

The Draft Directions propose that NBFCs meeting all of the following criteria may be exempt from registration under section 45-IA of the RBI Act, 1934:

• no acceptance of public funds;

• no customer interface; and

• asset size below ₹1,000 crore.

Such entities are proposed to be classified as “Unregistered Type I NBFCs.” The rationale is that NBFCs operating at a limited scale, without public leverage or customer-facing activity, pose minimal systemic or consumer risk.

2. Six-Month Deregistration Window:

Existing registered Type I NBFCs that satisfy the exemption criteria may apply for deregistration within six months of the final notification (currently proposed until September 30, 2026). This transition window is intended to facilitate an orderly migration without regulatory disruption.

3. Retention of Oversight:

Importantly, exemption from registration does not imply exemption from regulation. The RBI retains the power to:

• issue directions to Unregistered Type I NBFCs;

• impose conditions where risk perception changes; and

• require registration if the NBFC subsequently undertakes public-facing or higher-risk activities.

Practical Reading: Relevance for CIC-Type NBFCs Only?

Although framed generically, the Draft Directions appear primarily targeted at Core Investment Companies (CICs) and CIC-like NBFCs that:

• function as group holding or treasury entities;

• are not engaged in lending or credit intermediation; and

• do not have a customer interface in the ordinary sense.

Under the RBI Master Directions, CICs are designed to hold investments in group companies and provide internal capital support. Their risk profile is largely intra-group and balance-sheet driven, rather than consumer-or conduct-oriented.

The Draft Directions’ emphasis on absence of public funds, absence of customer interface, and modest asset size aligns closely with the operating profile of non-systemic CICs, reflecting a conscious move away from form-based regulation toward activity-based supervision under the Scale-Based Regulatory (SBR) framework.

Legal & Structuring Takeaways for Group NBFCs:

From a practical standpoint, the Draft Directions invite corporate groups to reassess legacy NBFC structures:

• Deregistration as a strategic option: CICs that are purely internal treasury vehicles may consider deregistration, subject to future business plans.

• Ring-fencing becomes critical: Any overlap between CICs and lending or customer-facing NBFCs could compromise exemption eligibility.

• Forward-looking analysis required: Planned capital raising, guarantees, or restructuring may inadvertently trigger “public funds” or “customer interface” thresholds.

• Governance discipline remains essential: RBI oversight continues even for exempt entities.

Draft FAQs: Where Clarification May Be Required

Alongside the Draft Directions, RBI has issued draft FAQs. Certain clarifications, if finalized without modification, may significantly narrow the scope of the exemption.

1. Director / Shareholder Loans as “Public Funds” (FAQ Q7):

The draft FAQ classifies all loans from directors or shareholders as public funds, on the basis that they constitute outside liabilities.

This interpretation is over-inclusive. Promoter or shareholder funding in closely held CICs is typically quasi-equity, internal to the ownership structure, and does not create depositor or market risk. Treating such funding on par with public or market borrowings:

• collapses the distinction between promoter support and public leverage; and

• may disqualify most CICs from exemption eligibility.

Absent refinement, this clarification risks defeating the purpose of the exemption framework.

2. Over-Expansive Definition of “Customer Interface” (FAQ Q8):

The draft FAQ treats any lending or guarantee activity—including to group entities, shareholders, or directors—as “customer interface”(with a narrow carve-out only for employee loans).

For CICs, whose core function is to provide intra-group financial support, this interpretation effectively nullifies the exemption framework. It blurs the distinction between internal capital allocation and external financial intermediation, despite the absence of consumer or conduct risk.

3. Asset Aggregation Clarification (FAQ Q13):

The clarification that assets of Unregistered Type I NBFCs will be excluded from group-level aggregation is, in principle, consistent with proportional regulation and avoids artificial inflation of group size due to dormant or holding entities.

However, if applied mechanically, this clarification may also create structuring incentives for unruly or regulatory-arbitrage-oriented elements to fragment operations across multiple Unregistered Type I NBFCs, each remaining below the ₹1,000 crore threshold, in order to circumvent the intended asset-size trigger.

While the Draft Directions emphasise absence of public funds and customer interface, asset fragmentation within a group—without appropriate substance-based scrutiny—could dilute the effectiveness of the scale-based framework.

From an implementation perspective, this reinforces the need for:

• robust group-level supervision and substance-over-form assessment; and

• RBI’s continued ability to require registration or impose conditions where multiple entities are structured to avoid regulatory thresholds.

A calibrated supervisory safeguard in the final directions—without reintroducing blanket aggregation—would help balance regulatory relief with systemic discipline.

Transitional Gap: 

A further issue arises for NBFCs that have discontinued lending and have restricted their activities solely to investment or intra-group treasury functions.

As currently articulated, deregistration eligibility is proposed to be assessed with reference to the preceding three financial years, and applications are to be made within a time-bound window ending September 30, 2026. This creates a transitional gap for NBFCs that:

• have historically undertaken lending activity;

• now have exited lending; and

• intend to operate prospectively as investment-only or CIC-type entities.

As presently drafted, the framework does not clearly address:

• whether prospective business restrictions, supported by board-approved policies and regulatory undertakings, would be sufficient for deregistration?

or

• whether such NBFCs would need to remain registered until a full three-year period without lending activity has elapsed? —by which time the deregistration window may have closed.

In the absence of clarity on prospective eligibility, such NBFCs may be required to remain registered solely due to historical activity, notwithstanding the absence of any current or future customer interface. This may inadvertently discourage orderly exits from lending and delay balance-sheet de-risking by smaller NBFCs.

A clarification in the final directions on prospective eligibility, transitional undertakings, or a rolling deregistration mechanism could help address this gap without compromising supervisory oversight.

Concluding Observations:

The Draft Amendment Directions, 2026 mark a measured shift toward activity-based regulation, particularly for non-customer-facing NBFCs such as CICs. However, to ensure the framework delivers meaningful relief, the final FAQs will need to clearly distinguish:

• promoter/shareholder funding from public funds;

• intra-group financial support from customer-facing activity; and

• historical lending from prospective business models.

If the Draft FAQs are finalized without modification:

• very few CICs will qualify as Unregistered Type I NBFCs; 

• the exemption framework may remain largely theoretical;

• there will be artificial asset fragmentation designed to circumvent the scale-based framework.

Conversely, a calibrated refinement would allow RBI to retain supervisory control while meaningfully reducing compliance friction for low-risk NBFCs.