The Reserve Bank of India (‘RBI’) has released draft amendments relating to the registration framework for NBFCs, with a special focus on Type-I NBFCs (having no public funds and customer interface). RBI is steadily moving towards a more risk-based regulatory regime, recognising that Type-I NBFCs generally do not have material assets under management and therefore do not pose systemic risk to the financial system.

These entities typically conduct their business through their own funds, without sourcing any public funds such as bank borrowings, and also without having any direct customer interface. Considering their limited risk profile, RBI has proposed several exemptions and relaxations for such NBFCs. This article highlights the key proposals and their likely impact on existing as well as newly incorporated NBFCs.

Introduction of a New Concept: “Unregistered Type-I NBFCs”

It means such NBFCs that are type-I NBFCs and are exempt from registration under section 45IA of the RBI Act, 1934 subject to the fulfilment of the following conditions:

1. Not having public funds and customer interface i.e. using their owned funds to carry out activities.
2. Asset size is less than Rs. 1,000/- crores.
3. Disclosure be made in the financial statements that it is an ‘unregistered NBFC Type-I’.
4. Statutory auditor in its report does not qualify any non-compliance of the above foregoing conditions.

This proposal is broadly aligned with the existing regulatory treatment available to Core Investment Companies (CICs), where CICs below asset size of Rs. 100 crores or those not accessing public funds are exempt from registration and are treated as “Unregistered CICs”. On the same rationale, RBI now proposes a similar exemption for Type-I NBFCs that neither raise public funds nor deal with customers.

Relaxation for existing NBFCs

NBFCs that are registered as Type-I NBFCs with the RBI and have an asset size of less than Rs. 1,000 crores as at March 31, 2026, can apply to the RBI for de-registration and be categorised as ‘unregistered NBFC’ along with certain documents. RBI, upon receipt of the application, will scrutinise the registered NBFC after considering its business model. The proposed date that shall be filed for de-registration is on or before September 30th, 2026.

The above relaxation shall not be applicable to NBFCs having type-II registration, even if those NBFCs do not have public funds and customer interface.

Continued Regulatory Oversight Despite Exemption

While proposing exemption from registration, RBI has also made it clear that such “Unregistered NBFCs” will continue to remain regulated under the RBI Act, 1934 through applicable directions and regulations as amended from time to time. Therefore, exemption from registration should not be interpreted as complete regulatory exclusion.

Key Clarifications from RBI’s Draft FAQs

Along with the draft amendments, RBI has also issued draft FAQs to help stakeholders understand the regulatory intent. RBI has clarified that newly incorporated companies may remain exempt from registration if they do not intend to avail public funds, do not have any customer interface, and their asset size remains below ₹1,000 crore.

1. Exemption from registration

The RBI has clarified that a newly incorporated company is exempted from registration when it does not intend to avail public funds and without any customer interface, provided its asset size is less than Rs. 1,000 crores.

2. Whether Deregistration is mandatory or optional

The RBI has clarified that for existing NBFCs that comply with the requirements of ‘unregistered NBFC’ have the option but not under any obligation to apply for deregistration.

3. Cessation of Exemption

In one query, RBI has made it clear that once the asset size of an ‘Unregistered NBFC’ about to breach the limits of Rs. 1,000/- crores, then such NBFC need to apply to the RBI as Type-I NBFC, not being an unregistered.

4. What shall be covered under ‘Public Funds’

In the FAQ, RBI has clarified the term ‘public funds’ as any fund received from outsource source which includes ‘indirect public funds’, which is explained as funds received from a group company or through associates that have access to public funds. In other words, RBI makes it clear that any fund received from external sources like banks, financial institutions, etc. would be covered under ‘public funds’ either directly or through any of the group entities. Consequently, this has also made clear that not all ICDs fall under the definition of ‘public funds’ unless the lending company has access to underlying public funds.

5. Whether loan from Directors and shareholders consider as ‘Public Funds’

The RBI has also said that loan from ‘directors and shareholders’ amount to public funds. This aspect may require reconsideration, as promoters and shareholders commonly infuse funds into NBFCs through loans/ NCDs in the ordinary course, while ensuring that such funds are not sourced from public financial channels.

6. What shall be covered under ‘Public Funds’

The term ‘customer interface’ is clarified to include any account-based relationship even if limited to only group companies. RBI has explained that customer interface is not confined to lending but may also extend to activities such as distribution of mutual funds, credit cards, PoS for NPS products, insurance products, etc.

Require Clarity on ‘investment Activities’

One area where further clarity may be required is whether investment activities would also fall within the scope of “customer interface”. It remains uncertain whether RBI intends to treat investments in listed entities, unlisted companies, group entities, or external entities as involving customer interface, especially since RBI has, in certain past cases, regarded some investment activities as creating an indirect interface.