NO RBI REGISTRATION REQUIREMENTS FOR SMALL NBFC--RBI MPC UPDATE (FEB 6, 2026):

 NO RBI REGISTRATION REQUIREMENTS FOR SMALL NBFC--RBI MPC UPDATE (FEB 6, 2026):

WHAT IS NEW ?

During the RBI Monetary Policy Committee (MPC) meeting on February 6, 2026, the Reserve Bank of India announced regulatory relief for smaller non-banking financial companies (NBFCs):

• ·      NBFCs that do not have access to public funds
• ·      No customer interface
• ·      And have total assets not exceeding ₹1,000 crore

This measure is part of a broader effort to ease compliance burdens and promote ease of doing business for smaller, low-risk NBFCs under a scale-based regulatory framework.

Small NBFCs are proposed to be exempted from the mandatory registration requirement with the RBI.

WHY THIS CONCERNS ?

UNDER THE PRESENT REGIME

Before this announcement, RBI registration (a Certificate of Registration or CoR) was mandatory for all entities meeting the NBFC definition under the RBI Act irrespective of scale. This included those without significant public fundraising or customer lending.

PERIODIC REPORTING IS MANDATORY UNDER CURRENT REGIME

The registration requirement typically triggers ongoing regulatory obligations, such as 

• periodic reporting, 
• governance, 
• prudential compliance, and
•  supervisory oversight.                                     Because of this, many small firms — including family offices and pooled investor vehicles — found it expensive or operationally cumbersome.

WHAT THE PROPOSED EXEMPTION AIMS TO?

• ·      Reduce compliance cost and administrative load for genuinely small, non-public NBFCs
• ·      Encourage market entry and financial innovation among smaller players
• ·      Segment regulation by risk, aligning supervisory intensity with systemic significance

WHAT Conditions HAVE TO BE MET FOR EXEMPTION?

It’s not a blanket deregulation of all small NBFCs. The exemption specifically applies to NBFCs that meet all the following three criteria:

• ·      No access to public funds
• ·      No customer interface (directly)
• ·      Asset size ≤ ₹1,000 crore

WHAT IS CUSTOMER INTERFACE?

Para 6(4) of under the RBI (NBFCs – Registration, Exemptions and Framework for Scale Based Regulation) Directions, 2025 (“RBI Master Directions”) defines customer interface as  “interaction between the NBFC and its customers while carrying on its business” In essence, customer interface exists where an NBFC directly deals with customers in the course of its business, such as sourcing borrowers, communicating loan terms, collecting repayments, or addressing grievances. The concept focuses on direct dealing/direct public engagement between the NBFC and its customers in the conduct of its business. Entities engaged in capital market transactions such as trading in shares, investments etc are not seen as having customer interface.

That means NBFCs that do take public funds (deposits, public money) or have direct customers (e.g., NBFC-MFIs, NBFC lenders with branch networks) are not exempt from registration.

• ·      Easing of regulatory processes (e.g., easier branch expansion for some NBFCs).

Thus, the registration exemption reform is complementary to broader goals: balancing regulatory oversight with facilitation of smaller non-bank credit intermediation.

The above draft proposals will be implemented once RBI issues further guidelines on the above.

 

R V SECKAR, FCS, LLB 79047 19295