The Reserve Bank of India has changed the rules for NBFCs in India. On April 29, 2026, RBI issued a new set of rules called the Non-Banking Financial Companies – Registration, Exemptions and Framework for Scale-Based Regulation (Amendment) Directions, 2026. These rules start on July 1, 2026. They change how every NBFC in the country is classified, regulated, and watched.
Do you run an NBFC? Do you sit on its board? Do you advise one? Then don’t skip this rule. It decides if your entity needs a Certificate of Registration (CoR) at all. It also decides how much compliance work you will have to do.
In this blog, I’ll explain where this change came from. I’ll explain what it says. I’ll show how it fits into the current Scale Based Regulation (SBR) framework. And I’ll tell you what to do before the deadlines arrive. I’ve kept the language simple on purpose. Every founder, CFO, and compliance officer should understand this without needing a law degree.
A Quick Recap: How NBFCs Were Regulated Before This
To understand why this change matters, let’s look at the old rules first.
Since October 2022, NBFCs in India have followed the Scale Based Regulation (SBR) framework. RBI brought this in back in 2021. Under SBR, every NBFC sits in one of four layers. The layer depends on size, activity, and risk to the system:
- Base Layer (NBFC-BL): Non-deposit-taking NBFCs with assets below ₹1,000 crore. This also includes NBFC-P2P, NBFC-AA, and NBFCs with no public funds and no customer contact. This layer has the lightest rules.
- Middle Layer (NBFC-ML): All deposit-taking NBFCs, no matter the size. It also includes non-deposit-taking NBFCs with assets of ₹1,000 crore or more, Housing Finance Companies (HFCs), and Infrastructure Debt Fund NBFCs.
- Upper Layer (NBFC-UL): The top NBFCs picked by RBI each year based on size and importance to the system. These follow rules close to bank rules, board-level risk committees, mandatory listing, large exposure limits for at least five years after they get this tag.
- Top Layer (NBFC-TL): This layer is for NBFCs that RBI sees as a sharp risk, even within the Upper Layer. This layer stays empty unless RBI decides otherwise.
This system worked well. But it left one gap. NBFCs like NBFC-ICC (Investment and Credit Companies), NBFC-MFI (Microfinance Institutions), NBFC-Factor, and Mortgage Guarantee Companies could land in any layer. This depended on their size and work. It didn’t matter if they never touched public money or dealt with even one retail customer. So a small holding company with ₹200 crore in group investments and zero public contact still faced the same load as a large NBFC serving lakhs of borrowers.
RBI itself pointed out this gap back in 2022. It said it would issue separate rules for NBFCs with no public funds and no customer contact “in due course.” The April 2026 change is that promise, kept at last. And it goes further than most people expected.
The Two New Buckets: Type I and Type II
From July 1, 2026, every NBFC falls into one of two groups.
Type I NBFC This is an entity that does not use public funds and does not deal with customers. Examples: investment holding companies, inter-corporate deposit entities, treasury vehicles, and family office structures set up as NBFCs.
Type II NBFC This means every other NBFC. Any entity that raises money from the public, takes deposits where allowed, or deals directly with retail customers falls here.
This one line now decides your whole compliance path. It matters more than the old activity-based labels like NBFC-ICC or NBFC-MFI.
The Big Relief: Unregistered Type I NBFC
The most talked-about part of this change is a brand-new group called the “Unregistered Type I NBFC.”
Entities in this group are exempt from mandatory registration under Section 45-IA of the RBI Act. They are also exempt from the reserve fund rule under Section 45-IC. In plain words: no CoR needed, no reserve fund needed, if you meet the conditions below.
Rules to qualify as an Unregistered Type I NBFC:
- No public funds — The entity must not raise money from the public. This includes indirect routes through associate or group entities.
- No customer interface — No direct or indirect contact with retail customers.
- No deposits — The entity cannot take deposits from the public, directly or through group entities.
- Asset size below ₹1,000 crore — Based on the latest audited balance sheet. If a group has more than one Type I NBFC, RBI will add up the asset size across the group before checking if it qualifies.
That fourth point needs a closer look. Many businesses trip up here. This is not the first time RBI has used group-level addition. The original SBR framework used the same logic to decide if group NBFCs sit in the Middle Layer. The same idea applies here. Say your group runs three Type I entities. Each one holds ₹400 crore in assets. That adds up to ₹1,200 crore. All three would fail the ₹1,000 crore test. None of them would qualify as an Unregistered Type I NBFC, even though each one looks small on its own. This closes a gap. Large business groups could have split assets across small shell entities just to avoid registration.
If your entity passes all four tests, you may not need a CoR at all. Or you may be able to exit an existing one.
The Deregistration Window: A First-of-Its-Kind Exit Route
Here’s something new. For the first time, RBI has built a clear exit route for NBFCs that no longer need to stay registered.
- Existing registered NBFCs including registered Type I NBFCs get a one-time window to apply for deregistration by December 31, 2026.
- You apply through RBI’s PRAVAAH portal. This is the same online system RBI uses for many regulatory applications and approvals.
- You will need an auditor’s certificate. It must confirm the entity has no public funds and no customer contact. You also need a company undertaking that says it won’t take on either in the future.
- Your NBFC must already meet the Unregistered Type I NBFC rules as of the date you file the application. Not at some future date. RBI checks where you stand today, not what you plan to do.
- RBI can refuse deregistration if it is not satisfied that your business is truly low-risk and Type I in nature.
If your entity qualifies for Type I status, think about surrendering your CoR before September 30, 2026. This gives your board enough time to make a careful choice. It’s better than rushing near the December 31 deadline.
What Type II NBFCs Must Do
If your entity falls under Type II, there’s no relief. Only sharper focus. By July 1, 2026, Type II entities must fully follow the rules for their layer under the SBR framework. This includes:
- Capital adequacy ratios set for their layer
- Asset classification and provisioning norms, including the updated IRACP rules explained below
- The Fair Practices Code, which covers how customers are treated during lending, recovery, and complaint handling
- KYC and AML systems strong enough to pass supervisory review
- Timely reporting to RBI through the required supervisory returns
Upper Layer NBFCs face an even higher bar. Their rules look close to bank rules. This includes board-level risk committees, mandatory listing of equity shares within a set time after getting the Upper Layer tag, and large exposure limits. These limits cap how much exposure they can give to one borrower or group.
Boards of Type II NBFCs, especially in the Middle and Upper Layers, should review their governance, capital buffers, reporting systems, and internal audit setup now. Don’t wait until June 2026, when there’s no time left to fix gaps.
A Related Change: IRACP Amendment Directions, 2026
Along with the reclassification, RBI also issued the NBFC Income Recognition, Asset Classification and Provisioning (IRACP) Amendment Directions, 2026. This also starts on July 1, 2026. It matters a lot for lending NBFCs with stressed accounts. Key points:
- Borrower accounts that turn NPA due to a calamity can get back “Standard” status, once a resolution plan under Chapter VI-A is in place. This applies even if they briefly turned NPA.
- Accounts that go through repeated restructuring can stay classified as “Standard,” as long as they meet the compliance conditions. This is a real shift from the older, stricter approach.
- To balance this relief with discipline, NBFCs must set aside extra provisioning of 5% of the outstanding debt for each round of restructuring. This is capped at 100%. NBFCs can reverse this provisioning once repayment is steady.
- Interest income on resolved accounts follows the accrual basis. For accounts with repeat restructuring, it follows the cash basis instead. This means income is booked only when it’s actually received, not when it’s due.
If your NBFC deals with stressed assets, calamity-hit borrowers, or restructuring in its lending book, this rule hits your provisioning numbers and income recognition from July 1, 2026. Walk your finance team through this change before the date arrives. It affects both your P&L and your NPA reporting.
Why This Matters for the Sector as a Whole
India’s NBFC sector gave over ₹38 lakh crore in credit to the economy in FY26. It reaches borrowers that banks often don’t reach especially across Tier 2 and Tier 3 India. NBFCs remain the backbone of financial inclusion there.
RBI’s message is clear. One-size-fits-all NBFC regulation is over. Low-risk entities with no public contact get lighter rules. Many can even exit registration fully. But public-facing NBFCs, or ones that take deposits or serve many customers, should expect more scrutiny, not less, in the years ahead. Expect higher capital adequacy demands, stricter audits, and closer checks on governance.
Large, well-run NBFCs have already shown that strong compliance and fast growth can go together. NBFCs that treat July 1, 2026 as just another paperwork date will likely struggle later. NBFCs that use this window to truly rethink their structure, governance, and risk will be in a much better spot for what comes next in NBFC regulation in India.
Action Checklist Before July 1, 2026
- Check if your NBFC is Type I or Type II under the new rules.
- If Type I, check all four rules for Unregistered Type I NBFC status. Don’t forget the group-level asset total across all Type I entities in your group.
- If you qualify and are already registered, decide whether to apply for deregistration through PRAVAAH before December 31, 2026. Aim for a board decision by September 30, 2026.
- If Type II, review your capital adequacy, provisioning, KYC/AML, and reporting systems against your layer’s rules.
- Check the IRACP change if you carry restructured or calamity-hit accounts. Update your provisioning models to match.
- Keep clear records. RBI can refuse deregistration if it’s not convinced your business is truly Type I in practice, not just on paper.
Conclusion
RBI’s April 2026 change is one of the biggest shifts in NBFC regulation in years. It comes down to one simple idea: risk should decide how much oversight an entity gets, not just its size or activity label. If your NBFC has no public funds and no customer contact, July 1, 2026 could mean lighter compliance, or even a full exit from registration. If your NBFC deals with the public, the same date marks the start of closer checks and higher expectations.
Either way, don’t leave this for June 2026. Start now. Confirm if you’re Type I or Type II. Check your numbers against the ₹1,000 crore mark at the group level. Get your papers ready well before the September 30 and December 31 deadlines. NBFCs that plan early will move through this change with ease. NBFCs that wait will be doing last-minute paperwork under pressure.
Not sure if your NBFC qualifies as Type I or Type II under the new rules? Not sure what the IRACP changes mean for your provisioning? I’d be happy to walk through your setup.
Reach out to the NBFC Advisory team at business@nbfcadvisory.com and let’s get you audit-ready well ahead of July 1, 2026.
Need expert guidance? Get in touch with our consultants today.
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