RBI Eases Rules for Smaller NBFCs: Deregistration Route Explained

The Reserve Bank of India (RBI) has eased regulatory requirements for smaller Non-Banking Financial Companies (NBFCs), introducing a new classification system and allowing eligible firms to seek deregistration if they do not handle public funds or directly interact with customers. The changes, formalized under the Reserve Bank of India (Non-Banking Financial Companies – Registration, Exemptions and Framework for Scale Based Regulation) Amendment Directions, 2026, will take effect on July 1, 2026.

New NBFC Classifications

The revised framework introduces ‘Type I NBFCs,’ defined as entities that do not accept public funds and have no customer interface. All other NBFCs will be categorized as ‘Type II NBFCs.’ The RBI has also clarified that indirect receipt of public funds—through group entities or associates—will be considered as public funds, increasing scrutiny of fund flows.

Deregistration Pathway for Smaller NBFCs

A key feature of the amendment is the exemption from registration requirements for NBFCs meeting specific criteria. Entities with asset sizes below ₹1,000 crore (approximately $12 million USD, based on current exchange rates) that neither accept public funds nor have customer interaction can apply for deregistration with the RBI.

Eligible NBFCs, including those currently registered, have until December 31, 2026, to submit applications for deregistration, provided they meet the prescribed conditions. The application process will be conducted through the RBI’s PRAVAAH (Platform for Regulatory Application, Validation, and Authorisation) portal.

Conditions for Deregistration

To qualify for deregistration, NBFCs must demonstrate that operating without public funds and customer interface is integral to their long-term business model. They are also required to pass annual board resolutions confirming this commitment and disclose their status in their financial statements, according to the central bank.

“NBFCs operating without public funds and customer interface and with asset size below ₹1,000 crore may be exempted from mandatory registration.”

RBI draft for NBFC deregistration below ₹1,000 crore AUM

The RBI’s move aims to streamline the regulatory landscape for smaller NBFCs that pose a lower risk to the financial system. By allowing these entities to exit the regulatory framework, the RBI intends to focus its supervisory resources on larger and more complex NBFCs.

Clarification on ‘Customer Interface’

The RBI has clarified the definition of ‘customer interface’ to include lending or providing guarantees, even to entities within the same group, shareholders, or directors. This broader definition aims to prevent NBFCs from circumventing the regulations by engaging in transactions with related parties.

Treatment of Funds from Directors and Shareholders

Any funds received from directors and/or shareholders of an NBFC will be treated as “public funds” for the purpose of determining eligibility for exemption or deregistration. This provision is designed to prevent NBFCs from masking public funding through indirect channels.

The RBI’s decision to allow deregistration for smaller NBFCs represents a significant shift in its regulatory approach, offering a structured exit route for entities that do not engage in activities requiring close regulatory oversight. The implementation of these changes on July 1, 2026, will be closely watched by industry stakeholders.