RBI Announcement: Proposal To Exempt Eligible NBFCs From Mandatory Registration With RBI

The Reserve Bank of India ('RBI'), in its Statement on Developmental and Regulatory Policies released on 6 th Feb 2026, has indicated a potential relaxation in the registration framework applicable to certain Non-Banking Financial Companies ('NBFCs'). A broad overview of the concept of NBFC, the announcement made by the RBI in relation to the proposed relaxation for certain specified categories of NBFC and its potential impact have been summarized below:

BRIEF BACKGROUND

• Typically, an NBFC is a company which has its principal business of providing loans and advances, acquisition of shares / stocks / bonds / debentures / securities or other marketable securities of a like nature, leasing, hire-purchase, etc.
• The term "principal business" is not defined in the RBI Act, 1934. To determine if a company qualifies as an NBFC, RBI refers to the Principal Business criteria outlined in Press Release 1998-99/1269 dated April 8, 1999.
• As per the said Press Release, a company will be treated as an NBFC if:
  1. Its financial assets are more than 50% of its total assets (excluding intangible assets), and
  2. Income from financial assets is more than 50% of its gross incom
• This test is popularly known as the "50-50" test. A company which fulfils both these criteria needs to get registered as NBFC with RBI.
• Currently, NBFCs which do not accept public funds and do not have a customer interface are categorised as Type I NBFCs, whereas NBFCs which accept public funds and / or have a customer interface are categorised as Type II NBFCs.

ANNOUNCEMENT BY RBI

• RBI has proposed that Type I NBFCs (i.e., NBFCs not accepting public funds and not having a customer interface) with an asset size not exceeding INR 1,000 crores be exempted from mandatory registration with the RBI, subject to conditions as may be specified by the RBI.
• In this regard, draft Amendment Directions will be issued shortly for feedback from stakeholders, and the exemption will be operational only after the final directions are notified.
• It is important to note that Type II NBFCs i.e. NBFCs accepting public funds and / or having or intending to have a customer interface, will continue to require registration under the extant legal framework.

KEY TAKEAWAYS

• If implemented as proposed, this measure could materially reduce compliance and regulatory costs for low-risk and privately funded investment companies.
• Further, it allows regulatory focus to remain concentrated on NBFCs with higher systemic and consumer risk.
• This is a positive development and is likely to encourage many family offices to simplify their holding structures. It is also hoped that the earlier practice of undertaking trading activity in investment companies merely to overcome the "50:50" test will now be put to rest.

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