RBI's NBFC Registration Amendment Directions 2026: What changes for NBFCs not accessing public funds and not having customer interface?

The Reserve Bank of India (“RBI”) through its Amendment Directions to the RBI (Non-Banking Financial Companies – Registration, Exemptions and Framework for Scale Based Regulation) Directions, 2025 (“NBFC Registration Directions”), notified on April 29, 2026 (“Amendment Directions”), following the draft directions issued by the RBI in this regard dated February 16, 2026 (“Draft Directions”) marks a subtle but decisive shift in the regulatory philosophy with respect to the registration and exemption of non-banking financial companies (“NBFCs”) in India.

While at first glance, the Amendment Directions appear to be a facilitative regime for small, non-systemic NBFCs, particularly benefitting those NBFCs not availing public funds and not having customer interface. However, in reality, it is accompanied by a sweeping expansion of what now falls under the definition of ‘public funds’. Under the Amendment Directions, with the introduction of the explanation, there is a definitional expansion to the term ‘public funds’ to now include funds received from any associate companies and/ or group companies that have access to public funds, which may fundamentally alter how NBFCs as investment vehicles, are structured in India.

The Amendment Directions introduce a formal category of registration requirement for “Type I NBFCs” that: (a) do not access public funds, and (b) do not have a customer interface, with asset size in excess of INR 1000,00,00,000 (Indian Rupees One Thousand Crore only). However, for the NBFCs with asset size below INR 1000,00,00,000 (Indian Rupees One Thousand Crore only) that do not access public funds and do not have customer interface (“Unregistered Type I NBFCs”), the RBI offers: (a) an exemption from the certificate of registration requirement specified under Sections 45-IA and 45-IC of the RBI Act, and (b) the possibility of de-registration of such already registered Type I NBFCs within the prescribed timeline, effectively easing compliance burdens for the NBFCs.

On paper, such a move is indeed a progressive step towards limiting regulatory compliance for the upcoming as well as existing NBFCs satisfying the aforementioned conditions. It is an acknowledgement by the RBI that not all financial activity poses systemic risk and that, there is a need to reduce regulatory friction for captive or treasury-like NBFC entities. However, the relief stands diluted by the RBI’s now expansive interpretation of the term ‘public funds’.

On a combined reading of the NBFC Registration Directions and the Amendment Directions, the term ‘public funds’ includes not just public deposits, but also inter-corporate loans, bank borrowings, debentures, commercial papers, and essentially encompasses all external funding from any sources, including its associate companies and/or group companies. More critically, however, is the clarification provided in respect of ‘indirect receipt of public funds,’ which includes funds routed through group companies and/or associate entities that have access to public funds.

Furthermore, the RBI has explicitly rejected the exclusion of: (a) intra-group loans; (b) loans from promoters/directors/shareholders; and (c) guarantees within the group, from the definition of ‘public funds’, thereby signalling the RBI’s intent of substance over form when determining the classification criteria for ‘public funds’. 

Similarly, the definition of ‘customer interface’ also operates broadly to include any interaction with customers in the course of the NBFC’s business, including, without limitation, any customer-oriented activities like lending or providing a guarantee, including to ‘entities in the group’, its shareholders, its directors or providing any other product or service to a customer. Accordingly, while investment in the debt capital market by an NBFC, being akin to an investment activity, may reasonably not qualify as having a ‘customer interface’, however, any negotiated investment transaction of subscription by an NBFC of privately placed debentures and/or bonds may take the colour of a lending relationship with the issuing entity, and would possibly qualify as a ‘customer interface’.

It, however, cannot be assumed that equity investment activities undertaken by the NBFCs in any group companies and/or associate companies would qualify as a ‘customer interface’ since such equity investment activity is not in the nature of a customer-oriented activity and can be undertaken independently, without providing any product or service to the investee entity.

The alternate however, would not hold valid, such that if any entity within a group has access to public funds, the downstream deployment of capital by such group company and/or associate company (even as equity or intra-group lending) risks being characterised as indirect receipt of public funds, since it cannot now be argued that the equity infused into an NBFC, even from holding companies or any of its associate companies, is ‘owned capital,’ which was previously insulated in the absence of the explanation of ‘indirect funds’ in the definition of ‘public funds’. As per the updated definition of the term ‘public funds’, if the capital introduced by any associate company and/or group company is leveraged (e.g., raised through bank debt or market instruments), it could be inferred that the downstream equity investment may be characterised as indirectly sourced from public funds, given fungibility concerns explicitly recognised by the RBI. However, an express clarification from the RBI with respect to the treatment of such downstream equity investment indirectly sourced from public funds would be welcome.   

A combined reading of the already expansive term ‘customer interface’ along with the now expanded definition of ‘public funds’ indicates that fewer operating NBFCs would qualify as ‘Type I NBFCs’ or ‘Unregistered Type I NBFCs’ since the NBFCs not availing public funds and not having customer interface benefit is largely available to only purely captive, treasury-style or passively structured NBFCs. The Amendment Directions may succeed in closing regulatory gaps with respect to the registration requirements for Type I NBFCs or registration exemptions for NBFCs qualifying as Unregistered Type I NBFCs, but at the cost of significantly narrowing the universe of NBFCs that can practically avail such relief.

About the authors: Indrajit Mishra is a Senior Partner, Dhanishta Mittal is a Senior Associate and Shubham Mohapatra is an Associate at IC RegFin Legal.

Disclaimer: The opinions expressed in this article are those of the author(s). The opinions presented do not necessarily reflect the views of Bar & Bench.

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