In our earlier article¹, we had analysed the draft directions issued by the Reserve Bank of India on February 10, 2026, which proposed a significant regulatory relief for certain categories of NBFCs particularly those operating without public funds and customer interface.

Pursuant to stakeholder feedback, RBI has now issued the Reserve Bank of India (Non-Banking Financial Companies – Registration, Exemptions and Framework for Scale Based Regulation) Amendment Directions, 2026 on April 29, 2026, with effect from July 1, 2026.

The final framework retains the core intent of the draft while introducing critical safeguards to prevent regulatory arbitrage, especially at the group level.

Introduction of ‘Unregistered Type I NBFCs’

A key feature of the final directions is the formal recognition of a new category-‘Unregistered Type I NBFCs’, which are exempt from registration under Section 45IA of the RBI Act, 1934.

An entity qualifies for this exemption only if all of the following conditions are satisfied:

1. No public funds: The entity does not access public funds, whether directly or indirectly (including through group entities and associates), and does not intend to do so in future.
2. No customer interface: The entity does not deal with customers and has no such intent going forward.
3. Asset size threshold: The asset size is below Rs.1,000 crore as per the latest audited financial statements.

Further, such entities are also exempt from the provisions of sections 45IA (‘Registration’) and 45IC (‘transfer part of a year’s profit towards reserve fund’) of the RBI Act, 1934. However, these ‘Unregistered Type I NBFCs’ shall be subject to other provisions of RBI Act, 1934 as prescribed under Chapter IIIB and V. RBI reserves the right to issue directions, circulars, etc., specifically addressed to these ‘Unregistered Type I NBFCs’.

Here, it is also pertinent to note that the ‘Asset Size’ of Rs. 1000 crores shall be considered at the group level. In case there is more than one such ‘Unregistered Type I NBFCs’ in a group and the aggregate size breaches Rs. 1,000 crores, then registration is made applicable to all such NBFCs.

Deregistration Process — A First-Ever Structured Exit Route

Eligible existing NBFCs (including registered Type I NBFCs) have a one-time window to apply for deregistration by December 31, 2026, through the RBI’s PRAVAAH portal. The RBI reserves the right to refuse deregistration if not satisfied that the business model is genuinely of the Type I variety. While making an application to the RBI for ‘deregistration’, NBFC inter-alia needs to attach the auditor’s certificate certifying that NBFCs do not have public funds and also do not have a customer interface and an undertaking from the company that it does not intend to have public funds/ customer interface.

It is to be kept in mind that an NBFC needs to comply with the norms of ‘Unregistered Type I NBFCs’ as of the date of filing the application for deregistration. On the other hand, it is clarified that the position as of March 31, 2026, is not required to be taken into account while making the deregistration application to the RBI.

It is also pertinent to mention that filing of deregistration is not mandatory under these revised guidelines. Instead, upon getting the status as ‘Unregistered Type I NBFCs’, such NBFCs become eligible for various exemptions from the provisions of RBI’s Scale-Based Regulations, 2023. In case an NBFC which complies with the norms of ‘Unregistered Type I NBFCs’ and continues to hold a certificate of registration, then such NBFC shall be considered/ called as ‘Type I NBFCs’.

Ongoing Compliance Requirements

The exemption is not absolute and is subject to ongoing compliance obligations, including:

1. Operates without public funds and without customer interface, including operating as such in long-term.
2. Asset size is less than Rs.1,000/- crores as per last audited balance sheet.
3. Mandatory disclosure of status as ‘Unregistered Type I NBFC’ in financial statements.
4. An annual Board resolution confirming continued adherence to eligibility conditions and future intent.

A specific restriction has also been introduced for Unregistered Type I NBFCs proposing overseas investments. If such an entity intends to undertake overseas investment in the financial services sector, it must be registered with RBI and be regulated like a Type I NBFC.

These conditions ensure that the exemption remains principle-based but verifiable.

Conclusion

The Amendment Directions mark an important move towards risk-proportionate regulation of NBFCs. By introducing the concept of “Unregistered Type I NBFCs”, RBI has provided a structured exit route for entities that carry on financial activity without public funds and without customer interface. The framework is particularly relevant for family offices, private investment vehicles, group holding companies and treasury entities operating on owned funds. However, the relief is conditional and carefully ring-fenced through group-level asset aggregation, indirect public funds checks, Board undertakings, auditor certification and exception reporting. Eligible NBFCs should therefore undertake a legal and financial assessment before opting for deregistration and, where applicable, complete the process well before December 31, 2026.

Footnote

1. https://www.corporateprofessionals.com/articles/rbi-proposes-major-relief-for-small-nbfcs-with-no-public-funds-and-customer-interface/