RBI proposes deregistration window for NBFCs without public funds
The Reserve Bank of India (RBI) issued draft directions on February 10-11, 2026, proposing to exempt certain Non-Banking Financial Companies (NBFCs) from mandatory registration under Section 45-IA of the RBI Act, 1934.
Eligible NBFCs — those that do not accept public funds, do not have any customer interface, and have an asset size below ₹1,000 crore — may apply for deregistration within six months (by September 30, 2026).
These entities will be classified as "Unregistered Type I NBFCs" — a new regulatory category.
NBFCs not accessing public funds and without customer interface but with assets of ₹1,000 crore and above must continue to seek registration as "Type I NBFCs."
Applications for deregistration must be filed through RBI's PRAVAAH portal, with supporting documents including original certificate of registration, audited financials, statutory auditor's certificate, and board resolutions.
The draft was open for public comments until March 4, 2026.
NBFC Regulation Under the RBI Act — Section 45-IA and the Registration Framework
Non-Banking Financial Companies (NBFCs) are financial institutions registered under the Companies Act but regulated primarily by the RBI under Chapter III-B of the Reserve Bank of India Act, 1934. They perform credit intermediation but cannot accept demand deposits (the key distinction from banks).
Key Details
- Section 45-IA of the RBI Act, 1934 mandates that no company can commence or carry on the business of a non-banking financial institution without obtaining a Certificate of Registration (CoR) from the RBI and maintaining the prescribed minimum Net Owned Fund (NOF).
- Minimum NOF requirements: ₹10 crore for NBFC-ICC (Investment and Credit Company), NBFC-MFI, and NBFC-Factor; ₹2 crore for NBFCs not availing public funds and not having customer interface.
- "Public funds" include funds raised through public deposits, commercial paper, debentures, inter-corporate deposits, and bank borrowings — i.e., funds sourced from outside the entity's promoters.
- NBFCs are prohibited from accepting demand deposits; only certain categories (NBFC-D) can accept term deposits.
- Key sections of the RBI Act relevant to NBFC regulation: Sections 45-I (definitions), 45-IA (registration), 45-IB (maintenance of liquid assets), 45-IC (reserve fund), 45-JA (powers of RBI to give directions).
The deregistration proposal targets a category of NBFCs — those with no public exposure (no public funds, no customer interface) — where the systemic risk rationale for RBI oversight is minimal. Exempting them is a "proportionality" approach to regulation, reducing compliance burden without compromising financial stability.
Scale-Based Regulation (SBR) Framework for NBFCs
The RBI implemented the Scale-Based Regulation (SBR) framework for NBFCs in October 2021 (operational from October 1, 2022), replacing the earlier size-agnostic regulatory approach with a risk-and-scale-proportionate framework.
Key Details
- The SBR classifies all NBFCs into four layers based on asset size, systemic importance, and activity type:
- Base Layer (NBFC-BL): Smaller NBFCs with assets below ₹1,000 crore — lightest regulation.
- Middle Layer (NBFC-ML): Deposit-taking NBFCs, non-deposit NBFCs above ₹1,000 crore, and certain specialised categories — moderate regulation.
- Upper Layer (NBFC-UL): Top 10 eligible NBFCs identified by RBI as systemically important — near-bank-level regulation (Basel III norms applicable).
- Top Layer (NBFC-TL): Reserved for NBFCs posing extreme systemic risk — currently empty.
- The SBR framework also introduced enhanced corporate governance, IPO disclosure norms, and concentration limits for upper-layer NBFCs.
- The November 2025 amendments extended registration exemptions to small non-customer-facing NBFCs — the same principle underpinning the February 2026 deregistration proposal.
The deregistration window is consistent with the SBR philosophy: entities at the Base Layer with no public exposure pose negligible systemic risk and should face lighter regulatory touch. The "Unregistered Type I NBFC" category operationalises this at the registration stage.
Types of NBFCs and Their Economic Functions
NBFCs are a diverse category performing a range of financial intermediation functions that banks often cannot or do not perform — making them a critical part of India's financial inclusion and credit ecosystem.
Key Details
- NBFC-ICC (Investment and Credit Company): The most common type — provides loans and investments; includes consumer finance, vehicle finance, and housing finance companies.
- NBFC-MFI (Microfinance Institution): Provides small collateral-free loans to low-income borrowers, predominantly rural. Regulated under the RBI's harmonised MFI framework (2022).
- NBFC-Factor: Engaged in factoring business (purchase of trade receivables at a discount).
- NBFC-Infrastructure Finance Company (IFC): Provides long-term finance to infrastructure projects.
- NBFC-P2P: Peer-to-Peer lending platforms (regulated since 2017); not allowed to raise funds or lend directly — only match lenders and borrowers.
- NBFC-AA (Account Aggregator): Collects and shares financial data (with user consent) under the RBI's Account Aggregator framework (2021).
- Type I NBFC: Non-deposit-taking, non-systemically important NBFC with no public funds and no customer interface — the category most affected by the deregistration proposal.
- PRAVAAH portal: RBI's Centralised Information Management System portal (Platform for Regulatory Application, Validation and Authorization) for filing regulatory applications.
Type I NBFCs — the subject of the deregistration proposal — are essentially private holding companies or internal treasury entities of larger groups. They have minimal public exposure and regulatory exemption reduces compliance costs without systemic risk.
- Statutory basis: Section 45-IA of the RBI Act, 1934 (mandatory NBFC registration provision)
- Draft directions issued: February 10-11, 2026; comment deadline: March 4, 2026
- Eligibility for deregistration: No public funds + No customer interface + Asset size below ₹1,000 crore
- New classification: "Unregistered Type I NBFC"
- Deregistration window: Six months from April 1, 2026 (deadline: September 30, 2026)
- Application portal: PRAVAAH (RBI's regulatory application platform)
- Amendments take effect: October 1, 2026 (or earlier if adopted by an NBFC in entirety)
- SBR framework: Implemented October 2021, operational from October 1, 2022
- Minimum NOF for Type I NBFCs: ₹2 crore; for NBFC-ICC/MFI/Factor: ₹10 crore
- India has over 9,000 registered NBFCs as of 2025; the SBR's Base Layer contains the majority