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RBI proposes deregistration window for NBFCs without public funds

February 10, 2026 5 min read Economics GS Paper 3 (Economy — Banking and Finance)
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What Happened

  • 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.

Static Topic Bridges

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).

  • 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).

Connection to this news: 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.

  • 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.

Connection to this news: 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.

  • 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.

Connection to this news: 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.

Key Facts & Data

  • 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