Summary: The RBI Amendment Directions, 2026 introduce a revised regulatory framework for Non-Banking Financial Companies (NBFCs), effective 1 July 2026, creating a distinction between Type I, Type II, and Unregistered Type I NBFCs. Entities without public funds and customer interface may now qualify for exemption from mandatory registration under Sections 45IA and 45IC, subject to conditions including asset size below ₹1,000 crore and ongoing compliance requirements. Existing NBFCs may surrender their registration by 31 December 2026 if eligible. The framework clarifies definitions of “public funds” and “customer interface,” introduces group aggregation for asset thresholds, and mandates disclosures, board resolutions, and auditor oversight. While exemptions reduce compliance burden for passive entities such as holding companies or investment vehicles, RBI retains supervisory and penal powers. The circular also restricts overseas investments for unregistered entities and emphasizes careful evaluation before deregistration based on business plans and regulatory implications.
FAQs on RBI Amendment Directions, 2026
(For Readers, Promoters, Existing NBFCs)
Effective from: 1 July 2026, an endeavor is made to prepare frequently Ask Questions for readers, Promoters, Existing NBFCs as under:
Page Contents
- Basic Understanding
- B. New Classification of NBFCs
- C. Practical Impact For Existing NBFCs
- D. ₹1,000 CRORE THRESHOLD
- E. For New Startups / HOLDCOs / Investment Companies
- F. Compliance Requirements
- G. Auditor Impact
- H. Foreign Investment Questions
- I. For Promoters
- J. Our Professional View
- K. Action Checklist
- L. Detailed Comparative Table: Old Rules vs New RBI Circular
Basic Understanding
Q.1 What is the key change introduced by RBI in this circular?
Ans. RBI has introduced a new regulatory framework for NBFCs that do not accept public funds and do not have customer interface. Such entities may now get exemption from compulsory registration under Section 45IA of RBI Act if certain conditions are met.
Q.2 What is meant by “customer interface”?
Ans. Customer interface generally means dealing with customers directly such as:
- lending to retail/public customers
- accepting applications
- servicing borrowers
- collecting EMI from public borrowers
- marketing financial products to customers
If an entity has no direct public/customer dealings, it may qualify.
Q.3 What is meant by “public funds”?
Ans. Public funds include borrowings or funds raised from banks, financial institutions, debentures, deposits, inter-corporate borrowings etc. RBI has clarified that indirect receipt through associates/group entities may also be treated as public funds.
B. New Classification of NBFCs
Q.4 What are Type I NBFCs?
Ans. Type I NBFC means:
(a) NBFC not availing public funds
(b) no customer interface
(c) holds RBI Certificate of Registration as Type I NBFC
Q.5 What are Type II NBFCs?
Ans. All other RBI registered NBFCs (those with customer interface and/or public funds) shall be treated as Type II NBFCs.
Q.6 What is an Unregistered Type I NBFC?
Ans. It means an eligible NBFC operating without public funds and customer interface, exempted from registration under Sections 45IA and 45IC.
C. Practical Impact For Existing NBFCs
Q.7 Can an existing RBI registered NBFC surrender registration now?
Ans. Yes. Existing eligible NBFCs, including presently registered Type I style NBFCs, may apply to RBI for deregistration if they satisfy exemption criteria. Application window is within six months i.e., by 31 December 2026.
Q.8 What documents are required for deregistration?
Ans. Likely required:
(a) Original CoR
(b) Last 3 years audited financials
(c) Statement of public funds/customer interface for last 3 years
(d) Statutory Auditor certificate
(e) Board Resolution
(f) Board undertaking for disclosures
Application through PRAVAAH portal.
Q.9 Can shell/inactive NBFCs use this route?
Ans. Yes, if genuinely operating without public funds and customer interface as a conscious long-term business model. RBI may examine intent and substance.
D. ₹1,000 CRORE THRESHOLD
Q.10 What is the importance of ₹1,000 crore asset size?
Ans. If asset size is below ₹1,000 crore, eligible entity may remain unregistered.
If asset size is ₹1,000 crore or above, registration as Type I NBFC becomes mandatory.
Q.11 Will group companies be aggregated?
Ans. Yes. If multiple Unregistered Type I NBFCs exist in same group, their asset sizes may be aggregated. If combined size reaches ₹1,000 crore or more, all may need registration.
E. For New Startups / HOLDCOs / Investment Companies
Q.12 Can an investment holding company avoid RBI registration now?
Ans. Possibly yes, if:
- no public borrowings
- no lending/customer business
- asset size below ₹1,000 crore
- proper annual board resolutions and disclosures maintained
This may benefit family offices, promoter holding entities, treasury companies, passive investment vehicles.
Q.13 Can a company doing only group investments qualify?
Ans. Potentially yes, subject to no public funds/customer interface and satisfying principal business tests. Case-specific review needed.
F. Compliance Requirements
Q.14 What annual compliances remain for Unregistered Type I NBFC?
Ans. Even exempt entities must:
(a) pass annual Board Resolution at beginning of FY
(b) disclose status in Notes to Accounts
(c) maintain no public funds/customer interface
(d) face penal action if conditions breached
Q.15 Is complete RBI regulation removed?
No. Exemption is mainly from Sections 45IA and 45IC. RBI still retains powers under RBI Act and can issue directions or penal action.
G. Auditor Impact
Q.16 What role do statutory auditors play?
Ans. Auditors must submit Exception Report to RBI if entity violates conditions regarding:
(a) public funds
(b) customer interface
(c) exemption eligibility
H. Foreign Investment Questions
Q.17 Can Unregistered Type I NBFC make overseas financial sector investment?
Ans. Not freely. It must first obtain registration and comply with RBI approval framework.
Q.18 Can it invest overseas in non-financial sector?
Ans. No, circular specifically restricts such overseas investment by Unregistered Type I NBFC.
I. For Promoters
Q.19 Why is this circular commercial important?
Ans. This may:
(a) reduce regulatory burden
(b) help dormant NBFC exits
(c) simplify promoter investment structures
(d) lower compliance costs
(e) separate passive NBFCs from active lending NBFCs
Q.20 Should existing NBFCs immediately surrender CoR?
Ans. Not automatically. Need review of:
(a) future borrowing plans
(b) future lending/customer plans
(c) group structure
(d) M&A value of NBFC license
(e) tax and FEMA strategy
(f) business expansion roadmap
Professional review recommended.
J. Our Professional View
Q.21 Which clients should urgently review this circular?
(a) inactive NBFCs
(b) CIC / investment NBFCs
(c) promoter holding entities
(d) group treasury vehicles
(e) NBFCs planning merger/closure
(f) NBFCs with zero borrowers/public funds
K. Action Checklist
22. Immediate Steps for Existing NBFCs:
Ans.
(a) Review asset size
(b) Check any public funds exposure
(c) Check customer interface model
(d) Examine group entities
(e) Decide retain CoR vs surrender
(f) Prepare board note
(g) Auditor certification readiness
(h) PRAVAAH filing strategy
L. Detailed Comparative Table: Old Rules vs New RBI Circular
RBI Amendment Directions, 2026 (Applicable from 1 July 2026)
| Sr. No. | Particulars | Earlier Position (Before Amendment) | New Position (After RBI Amendment 2026) | Practical Impact |
| 1 | Classification of NBFCs without public funds/customer interface | Such NBFCs were recognized as a category but no formal Type classification existed. | RBI has introduced Type I NBFC, Type II NBFC, and Unregistered Type I NBFC concepts. | Clear segmentation of passive vs active NBFCs. |
| 2 | Registration Requirement | Even passive NBFCs generally required Certificate of Registration (CoR), unless separately exempted.
To manage systemic risk, the layers, based on asset size, activity, and risk, are: Base Layer (NBFC-BL), Middle Layer (NBFC-ML), Upper Layer (NBFC-UL), and Top Layer (NBFC-TL) |
Eligible NBFCs may now remain unregistered if conditions are fulfilled. | Major relaxation for small passive NBFCs. |
| 3 | Type I NBFC | Base Layer: Non-deposit-taking NBFCs with an asset size below ₹1,000 crore, along with NBFC-P2P (peer-to-peer), NBFC-AA (account aggregators), NOFHC (non-operative financial holding companies), and those with no public funds and no customer interface.
Earlier, No category like Type I NBFC is defined |
Registered NBFC with no public funds and no customer interface. | Separate compliance identity created. |
| 4 | Type II NBFC | (i) Middle Layer (NBFC-ML):
All deposit-taking NBFCs (NBFC-D) regardless of asset size, non-deposit-taking NBFCs with assets of ₹1,000 crore or more, standalone primary dealers (SPD), infrastructure debt funds (IDF-NBFC), core investment companies (CIC), and housing finance companies (HFC). (ii) Upper Layer (NBFC-UL): NBFCs specifically identified by the RBI using a scoring methodology for their systemic impact, including the top 10 NBFCs by asset size. (iii) Top Layer (NBFC-TL): Deemed to pose extreme systemic risk by the RBI. Earlier, No category like Type II NBFC is defined |
All other registered NBFCs fall under Type II NBFC. | Traditional lending NBFCs continue under stricter regime. |
| 5 | Unregistered Type I NBFC | No structured concept. | Eligible passive NBFC exempt from Sections 45IA & 45IC. | Useful for holding/investment entities. |
| 6 | Asset Size Threshold | No specific ₹1,000 crore threshold for this exemption structure. | Exemption available only if asset size is below ₹1,000 crore. | Large entities still need RBI registration. |
| 7 | If Asset Size Reaches ₹1,000 crore+ | No direct conversion framework. | Mandatory registration as Type I NBFC. | Growing groups must monitor assets yearly. |
| 8 | Group Aggregation | Less explicit. | Multiple Unregistered Type I NBFCs in same group will be aggregated for ₹1,000 crore test. | Stops fragmentation through multiple companies. |
| 9 | Existing Registered Passive NBFCs | Continued as registered NBFCs. | May apply for deregistration by 31 Dec 2026 if eligible. | Exit route for dormant/inactive NBFCs. |
| 10 | Application Mechanism | No specific streamlined surrender path in this format. | Application through PRAVAAH portal with prescribed documents. | Formal online process introduced. |
| 11 | Required Documents | Case-based. | Original CoR, 3 years audited accounts, auditor certificate, board resolution etc. | Documentary discipline increased. |
| 12 | Public Funds Definition | Existing meaning applied. | RBI clarified indirect funds via associates /group entities also count. | Anti-avoidance clarification. |
| 13 | Customer Interface Test | Existing concept but less emphasized in this framework. | Explicit future intention test also applies. Entity must not intend customer interface in future. | Forward-looking scrutiny. |
| 14 | Annual Board Resolution | Not specifically mandatory for exempt class. | Annual Board Resolution at beginning of FY mandatory for Unregistered Type I NBFC. | Governance compliance required. |
| 15 | Notes to Accounts Disclosure | Limited specific disclosure. | Must disclose status as Unregistered Type I NBFC + public funds /customer interface status. | Transparency enhanced. |
| 16 | Auditor Reporting | Standard audit obligations. | Auditors must file Exception Report to RBI on breach of exemption conditions. | Auditor accountability significantly increased. |
| 17 | Overseas Financial Sector Investment | No specific carve-out for unregistered passive NBFCs. | Unregistered Type I NBFC must first register and obtain approvals. | Overseas expansion restricted. |
| 18 | Overseas Non-Financial Investment | No express rule in this framework. | Specifically prohibited for Unregistered Type I NBFC. | Important FEMA/ structuring implication. |
| 19 | RBI Supervisory Powers | Applicable to registered NBFCs mainly. | RBI retains powers even over exempt Unregistered Type I NBFCs. | Exemption ≠ immunity. |
| 20 | Penal Consequences | Under existing RBI Act. | Violations by Unregistered Type I NBFC will be viewed seriously and penal action possible. | Strong deterrence. |
These FAQs are simplified guidance. Final applicability depends on facts, group structure and RBI interpretation.
*****
The Author can be contacted at email id roopalcs2001p@gmail.com.
Disclaimer: The contents of this article are for information purposes only and do not constitute an advice or a legal opinion and are personal views of the author. It is based upon relevant law and/or facts available at that point of time and prepared with due accuracy & reliability. Readers are requested to check and refer relevant provisions of statute, latest judicial pronouncements, circulars, clarifications etc before acting on the basis of the above write up. The possibility of other views on the subject matter cannot be ruled out. By the use of the said information, you agree that Author / TaxGuru is not responsible or liable in any manner for the authenticity, accuracy, completeness, errors or any kind of omissions in this piece of information for any action taken thereof. This is not any kind of advertisement or solicitation of work by a professional.
Author Bio
