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RBI exempts smaller NBFCs, creates structured exit route for first time

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 The Reserve Bank of India (RBI) on Wednesday issued final guidelines exempting non-banking financial companies (NBFCs) that do not avail of public funds, do not have a customer interface, and have assets of less than ?1,000 crore from the requirement to register with it. These NBFCs will be classified as “Unregistered Type I NBFCs”.Entities falling in this category will be exempt from registration requirements, provided they meet specified conditions, including operating a long-term business model without public funds or customer exposure. Boards must pass resolutions affirming compliance, while statutory auditors must certify the absence of public funds and customer interface.Existing NBFCs meeting these criteria have been given a one-time window to apply for deregistration by December 31, 2026 — introducing, for the first time, a structured exit route from the regulatory framework. Applications for deregistration must be made through the RBI’s PRAVAAH (Platform for Regulatory Application, Validation, and Authorisation) portal. The regulations will come into effect on July 1.The deregistration route is not unconditional. Applicants must submit audited financial statements for the past three years, a statutory auditor’s certificate confirming the absence of public funds and customer interface, and a board resolution committing to maintain these conditions going forward. The RBI has reserved the right to refuse deregistration if it is not satisfied that the business model is genuinely and durably of the Type I variety.NBFCs in this category with assets of ?1,000 crore or more will be required to obtain registration as Type I NBFCs, while all other NBFCs will fall under the broader Type II classification.The central bank has mandated aggregation of assets across group entities. If the combined assets of multiple such NBFCs within a group exceed ?1,000 crore, all will be required to register and comply with applicable norms.

The RBI has also tightened definitions to prevent regulatory arbitrage, clarifying that indirect access to public funds — such as through group entities — will be treated as public funding. NBFCs must not only avoid public funds and customer interface at present, but also demonstrate no intention to do so in future.Unregistered Type I NBFCs will continue to be governed by relevant provisions of the RBI Act. The regulator has reserved the right to issue directions or initiate action in case of concerns.Auditors have been given a more active role, with a requirement to file exception reports directly with the RBI if an entity breaches conditions relating to public funds or customer interface. The framework also introduces forward-looking conditions, requiring NBFCs to confirm not just current compliance, but also the absence of any intent to access public funds or customers in future.The amendments also place limits on overseas expansion. Unregistered Type I NBFCs seeking to undertake financial services investments abroad will first be required to obtain registration and prior approval from the RBI, and will be subject to existing overseas investment norms applicable to NBFCs.

 

-Business Standard 01st May,2026

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