RBI’s 2026 NBFC changes: does your group finance company need to register?
A plain guide for groups that lend within the family of companies
Are you an NBFC at all?
Two types of NBFC, and a new exemption
No registration needed if all of these hold
Where does your money come from?
A window to deregister
- Approval is not automatic. RBI must accept your business model.
- Keep complying and filing returns until RBI cancels your certificate
- Overseas investment in financial services still needs registration
Five checks for your group
Delhi Legal Company
On 29 April 2026, the Reserve Bank of India amended its NBFC registration directions, with effect from 1 July 2026. NBFCs are now classed as Type I (no public funds and no customer interface, assets of ₹1,000 crore or more, registration required), Type II (public funds or customer interface, registration required) or Unregistered Type I (no public funds, no customer interface, assets below ₹1,000 crore, exempt from registration). The relief is real but narrow: "public funds" now expressly includes money routed through group entities that borrow, and lending to group companies is generally treated as a customer interface. So a group finance company that lends to affiliates will usually still need registration unless it fits the Core Investment Company framework or falls outside the 50-50 test. Eligible existing NBFCs must apply to deregister by 31 December 2026.
1Why this matters to groups with finance or holding companies
Many Indian business groups, and many foreign groups with Indian operations, keep at least one company whose main job is financial rather than operational: a holding company that owns shares in operating subsidiaries, a treasury company that parks surplus cash, or a group finance company that lends to affiliates. Once such a company's financial assets and financial income cross the RBI's thresholds, it is legally carrying on non-banking financial business, and section 45-IA of the RBI Act, 1934 requires it to hold a Certificate of Registration (CoR) from RBI before doing so.
For years the rules contained a loosely described category of "NBFCs not availing public funds and not having any customer interface", which received lighter treatment but was never cleanly defined. The 2026 amendment turns that phrase into a formal taxonomy, grants a genuine exemption from registration to small captive entities, and at the same time widens the meaning of "public funds". The net effect is that some groups can now switch off their NBFC registration, while others will find that structures they assumed were low-risk now sit squarely inside the regime.
The timing matters. Existing NBFCs that want to take advantage of the exemption have a fixed window ending on 31 December 2026, and the documentation required, including three years of financials and an auditor's certificate, takes time to assemble.
Who this guide is for: promoters and CFOs of business groups, group treasury and holding companies, family investment companies, foreign parents with Indian finance or holding subsidiaries, and the company secretaries and auditors who advise them.
2The starting point: when is a company an NBFC?
The RBI Act does not define "principal business", so RBI applies its long-standing principal business criteria, popularly called the 50-50 test. A company is treated as carrying on financial activity as its principal business when both of the following are true:
Asset test
Financial assets make up more than 50% of total assets, with total assets netted off for intangible assets.
Income test
Income from those financial assets makes up more than 50% of gross income.
Both limbs must be satisfied. A manufacturing or trading company that makes occasional inter-corporate loans to group entities, but whose financial assets stay below half its balance sheet, is not an NBFC merely because it lends. Conversely, a company whose balance sheet consists mostly of loans to, or shares in, other group companies, and whose income is mostly interest and dividends, will usually pass the test, whatever it calls itself.
Operating without a CoR is a serious breach. Carrying on NBFC business without registration, when no exemption applies, contravenes section 45-IA of the RBI Act and exposes the company and its officers to penal action under the Act. Statutory auditors have traditionally qualified their reports where an investment company meets the 50-50 test but has not registered.
Passing the 50-50 test is only the first question. The second is whether an exemption takes the company out of the registration requirement. Before 2026, the main exemption relevant to group structures was for unregistered Core Investment Companies. The 2026 amendment adds a second: the Unregistered Type I NBFC.
3What changed in 2026, and when
- 28 Nov 2025
RBI consolidates its NBFC rules into a set of Directions, including the RBI (Non-Banking Financial Companies – Registration, Exemptions and Framework for Scale Based Regulation) Directions, 2025, which become the base text for the 2026 amendment. - Feb 2026
RBI releases draft amendment directions for public comment, proposing a registration exemption for NBFCs without public funds and customer interface. - 29 Apr 2026
Final Amendment Directions issued (RBI/2026-27/43, DOR.FIN.REC.No.67/03.10.001/2026-27), creating the Type I, Type II and Unregistered Type I categories. - 30 Jun 2026
RBI revises the voluntary surrender of CoR application form and checklist on the PRAVAAH portal, adding a specific checklist for the Unregistered Type I ground. - 1 Jul 2026
The Amendment Directions come into force. Qualifying NBFCs below ₹1,000 crore are exempt from sections 45-IA and 45-IC of the RBI Act. - 31 Dec 2026
Deadline for existing eligible NBFCs, including current Type I CoR holders, to apply for deregistration.
4The three categories: Type I, Type II and Unregistered Type I
| Category | Public funds | Customer interface | Asset size | Registration |
|---|---|---|---|---|
| Unregistered Type I NBFC | None, and no intention to access | None, and no intention to have | Below ₹1,000 crore (group aggregate) | Exempt from sections 45-IA and 45-IC |
| Type I NBFC | None, and no intention to access | None, and no intention to have | ₹1,000 crore or more | Required CoR as "Type I NBFC" |
| Type II NBFC | Yes, or intends to | Yes, or intends to | Any | Required any CoR other than Type I |
Three features of the new structure deserve emphasis:
- Type II is the default. An NBFC that has either public funds or a customer interface, even one of the two, is Type II. Most operating lenders fall here.
- The exemption is from registration, not from regulation. Unregistered Type I NBFCs are exempt only from section 45-IA (registration) and section 45-IC (the reserve fund). The rest of Chapter IIIB of the RBI Act continues to apply, and RBI keeps its enforcement powers. It has also reserved the right to issue instructions addressed specifically to these entities.
- The lighter regime follows the CoR. Across fourteen RBI Directions, the old descriptive phrase has been replaced with "NBFC holding Certificate of Registration as Type I NBFC". An existing no-public-funds NBFC that does not hold a Type I CoR is not eligible for the relaxed treatment given to registered Type I NBFCs.
“The exemption rewards a business model, not a balance sheet date.”
RBI will grant deregistration only if it is satisfied that the NBFC operates with a conscious and long-term model of avoiding public funds and customer interface. A company that simply repays its bank loan the week before applying, and plans to borrow again, should not expect to qualify.
5The two tests that decide everything: public funds and customer interface
5.1 Public funds
"Public funds" in RBI's vocabulary is much wider than public deposits. As commentators have summarised the combined effect of the 2025 Directions and the 2026 amendment, it covers inter-corporate loans and deposits, bank borrowings, debentures, commercial paper and, in substance, external funding from any source. RBI's long-standing definition carves out funds raised through instruments that are compulsorily convertible into equity within five years.
The 2026 amendment adds an important explanation: indirect receipt of public funds means funds received through associates and group entities that themselves have access to public funds. According to published analysis, RBI also declined requests to exclude intra-group loans, loans from promoters, directors or shareholders, and intra-group guarantees from the definition.
Leveraged parents create indirect public funds. If a holding company borrows from banks and on-lends to a group NBFC, that money is public funds in the NBFC's hands. Practitioners have also flagged an open question: whether equity infused by a parent that is itself leveraged could be characterised as indirectly sourced from public funds. RBI has not yet clarified this, so the funding history of the parent matters.
5.2 Customer interface
"Customer interface" broadly means interacting with customers in the course of carrying on financial business. Published analysis reads it to include lending, or giving guarantees, even to group entities, shareholders or directors, and providing any other financial product or service. On that reading:
Likely a customer interface
Loans or inter-corporate deposits to subsidiaries or sister companies; guarantees for group borrowings; negotiated subscription to a group company's privately placed debentures.
Likely not a customer interface
Equity investment in group or associate companies; passive investment in listed debt, mutual funds or bank deposits; holding treasury surplus without dealing with borrowers.
The practical consequence is that the Unregistered Type I exemption suits equity holding vehicles and passive treasury companies funded by their own equity. It rarely suits a company whose purpose is to lend.
6Does your group finance company need to register?
Work through these questions in order. Stop at the first one that answers the question.
- Does the company pass the 50-50 test? If either financial assets or financial income is 50% or less, it is not an NBFC and no registration is needed. Test this on each audited balance sheet, not once.
- Is it a Core Investment Company? If at least 90% of net assets are in group companies (with at least 60% in their equity), it falls under the CIC framework. Below ₹100 crore, or above it without public funds, it can be an Unregistered CIC. See section 7.
- Does it have public funds, directly or indirectly? Any bank loan, ICD, debenture, commercial paper or loan from a leveraged group entity points to Type II registration.
- Does it have a customer interface? Lending to, or guaranteeing for, group entities, shareholders or directors points to Type II registration.
- Is the group's aggregate size below ₹1,000 crore? If there are no public funds and no customer interface, the company is an Unregistered Type I NBFC below the threshold, and must register as a Type I NBFC at or above it.
| Structure | Likely outcome | Key question |
|---|---|---|
| Equity-funded holding company owning shares in group operating companies, no borrowings | Exempt as Unregistered CIC or Unregistered Type I | Is the parent's capital itself funded by borrowings? |
| Treasury company investing surplus group cash in mutual funds and bonds, equity-funded | Exempt if below ₹1,000 crore aggregate | Does any of the cash come from leveraged group entities? |
| Group finance company lending to subsidiaries, funded by equity | Registration likely (customer interface) unless CIC | Can it meet the 90% group-investment CIC test? |
| Group finance company funded by bank loans or ICDs and lending to affiliates | Type II or registered CIC | Which framework fits, and is NOF adequate? |
| Operating company with incidental loans to group entities | Not an NBFC if it fails the 50-50 test | Will a large loan or asset sale tip it over 50%? |
| Family investment company holding listed and unlisted shares, equity-funded | Exempt as Unregistered Type I if conditions met | Are there any loans to family members or related entities? |
Don't forget the minimum capital. If registration is unavoidable, new applicants need net owned funds of ₹10 crore, and existing NBFC-ICCs must reach ₹10 crore by 31 March 2027 under RBI's scale-based regulation glide path. A small group finance company may find restructuring cheaper than capitalising up to that level.
7The Core Investment Company route
For groups whose finance company exists to support group companies, the CIC framework is often a better fit than the new Type I exemption, because the CIC definition expressly contemplates loans to, and guarantees for, group companies.
- A company qualifies as a CIC if it holds at least 90% of its net assets in equity, preference shares, bonds, debentures, debt or loans in group companies, with at least 60% in equity of group companies, and does not otherwise carry on financial activity except in specified forms.
- RBI's framework treats CICs with assets below ₹100 crore, whether or not they access public funds, and CICs of ₹100 crore or more that do not access public funds, as Unregistered CICs, exempt from registration.
- A CIC with assets of ₹100 crore or more, individually or aggregated with other CICs in the group, that raises or holds public funds must register.
- Registered CICs sit in the Middle Layer or Upper Layer of scale-based regulation, never the Base Layer.
The CIC route is not a loophole: lending to non-group companies, or holding significant non-group investments, will break the 90% test. But for a genuine group holding and financing vehicle, it should be assessed before concluding that Type II registration is the only option.
8The group aggregation rule
The ₹1,000 crore threshold is not tested entity by entity. Where a group has more than one Unregistered Type I NBFC, their asset sizes are added together. If the aggregate reaches ₹1,000 crore, every one of them must register as a Type I NBFC, even if each is individually small.
Groups that historically spread investments across several small investment companies, often for family or succession reasons, should run this calculation now. A single large investment or revaluation in one company can pull all of them into registration.
9Deregistering before 31 December 2026
Existing NBFCs, including those that currently hold a Type I CoR, that meet the Unregistered Type I criteria may apply to RBI for deregistration through the PRAVAAH portal within six months of 1 July 2026. Entities that become eligible later can apply later. The application is made on the company's letterhead with the following documents:
- The original Certificate of Registration, submitted physically to RBI.
- Audited financial statements for the last three financial years.
- A statement on public funds and customer interface for the same three years.
- A Statutory Auditor's Certificate confirming that the company has no public funds and no customer interface as on date.
- A board resolution confirming the company has, and intends to have, no public funds or customer interface, and undertaking to seek Type II registration if that changes and Type I registration if assets reach ₹1,000 crore. The revised RBI checklist also asks for an undertaking to seek Type I registration before any overseas investment in the financial services sector.
- A board undertaking to disclose the company's Unregistered Type I status, and its public funds and customer interface position, in the notes to accounts.
- An extract of the main objects clause of the memorandum of association, as listed in RBI's revised checklist, together with the fact sheet in the application form (shareholders above 10%, group NBFCs, financial ratios and past regulatory actions, among other items).
Filing is not cancellation. RBI has made clear that submitting the application does not cancel the CoR. The company must continue to follow all applicable directions and file its regulatory returns until RBI communicates a decision. Plan for a period of dual effort.
Our board resolutions and minutes team can draft the resolution and undertakings, and we coordinate with statutory auditors on the certificate and three-year statement.
10Living with the exemption: ongoing conditions
The exemption is conditional and continuous. An Unregistered Type I NBFC must, at all times:
Annual board resolution
At the start of each financial year, pass a board resolution confirming the company will not access public funds or have a customer interface during that year.
Stay below the threshold
Keep asset size below ₹1,000 crore, on the latest audited balance sheet and in aggregate with other Unregistered Type I NBFCs in the group.
Disclose in the accounts
State its Unregistered Type I status, and its public funds and customer interface position, in the notes to its financial statements.
Auditor exception reporting
Its statutory auditor must report directly to RBI if any condition is breached. For registered Type I NBFCs, exceptions go to RBI's Department of Supervision.
Overseas investment limits
To invest overseas in financial services it must first register as a Type I NBFC and obtain RBI's prior approval. Overseas investment in non-financial businesses is not permitted.
Penal exposure
RBI has said violations of the exemption conditions will be viewed seriously and can attract penal action under the RBI Act.
Because the auditor reports breaches directly to RBI, the company's finance team should treat any new borrowing, guarantee or loan as a regulatory event and clear it in advance. Keep the board resolution and supporting analysis in the company's statutory records.
11Special points for foreign-owned groups
Foreign parents commonly set up an Indian holding or finance company to hold investments in Indian subsidiaries or to fund them. The 2026 changes apply to these entities in the same way, but several points need particular attention:
- Debt from the parent is public funds. External commercial borrowings, parent loans and non-convertible instruments are outside funds. A company funded this way will generally not qualify as Unregistered Type I.
- The parent's own leverage. Given the new "indirect public funds" explanation and the open question about leveraged equity, document how the parent funded its equity contribution.
- Downstream investment rules. An Indian holding company with foreign investment that invests in other Indian companies makes downstream investment, which carries its own FEMA pricing, reporting and sectoral conditions irrespective of RBI registration status. See our FEMA and FDI compliance service.
- Intra-group lending by the Indian subsidiary. An operating subsidiary that accumulates large loans to Indian sister companies should monitor the 50-50 test each year.
- Transfer pricing and tax. Intra-group interest and guarantee fees involving foreign associated enterprises remain subject to Indian transfer pricing rules, now in sections 161 to 173 of the Income-tax Act, 2025. Our corporate tax team can align the funding model with both regimes.
Equity or compulsorily convertible instruments are the cleanest funding. For a foreign-owned Indian holding company that wants to remain unregistered, funding through equity or instruments compulsorily convertible into equity within five years keeps it outside the public funds definition, provided the parent's own funding does not create an indirect public funds problem.
12Common assumptions, corrected
13Action checklist
- Inventory the group. List every company whose financial assets or income could exceed 50%, including dormant investment companies.
- Run the 50-50 test on the latest audited figures and on projections for the next two years.
- Map funding sources. For each entity, trace every rupee of funding back to equity, convertible instruments or debt, including at the parent level.
- Map counterparties. Record every loan, guarantee and debenture subscription, including to group entities and directors.
- Test the CIC route for any entity that lends to or guarantees for group companies.
- Aggregate the asset sizes of all prospective Unregistered Type I NBFCs against ₹1,000 crore.
- Decide for each entity: remain registered, deregister, register as Type I, restructure, or convert to a CIC.
- File on PRAVAAH by 31 December 2026 where deregistration is chosen, allowing time for the auditor's certificate.
- Update governance: diarise the annual board resolution, update notes-to-accounts templates and brief auditors on exception reporting.
- Plan for growth: set internal triggers well below ₹1,000 crore and before any borrowing, lending or overseas investment.
14How Delhi Legal Company can help
Delhi Legal Company advises Indian and foreign-owned groups on whether their holding, treasury and finance companies need RBI registration, and handles the corporate, FEMA and tax steps that follow.
15Conclusion
RBI's 2026 amendment does two things at once. It lets genuinely captive, equity-funded investment and treasury vehicles below ₹1,000 crore step out of registration, and it closes the gaps through which group funding and intra-group lending might have been treated as outside the regime. For most group finance companies, the honest answer to "do we need to register?" is still yes, unless the CIC framework fits or the business can be restructured so that it no longer meets the 50-50 test.
The deadline is close. Groups that want to deregister an existing NBFC need three years of records, an auditor's certificate and a carefully drafted board resolution on file by 31 December 2026. Groups that will stay registered should still map their entities and aggregate their asset sizes now, because the new definitions apply from 1 July 2026 regardless.
Check your group's NBFC position
We will review your holding and finance companies against the 50-50 test, the 2026 public funds and customer interface definitions and the CIC framework, and help you register, deregister or restructure before 31 December 2026.
Call +91-9599332456 | Email info@delhilegalcompany.com
?Frequently asked questions
What did RBI change for NBFC registration in 2026?
Through Amendment Directions dated 29 April 2026, effective 1 July 2026, RBI created three categories: Type I NBFCs (no public funds, no customer interface, assets of ₹1,000 crore or more, registration required), Type II NBFCs (with public funds or customer interface, registration required) and Unregistered Type I NBFCs (no public funds, no customer interface, assets below ₹1,000 crore, exempt from registration under sections 45-IA and 45-IC of the RBI Act).
Does a company that lends only to group companies need NBFC registration?
Usually, yes, if it meets the 50-50 principal business test. Lending to group entities is generally treated as a customer interface, so the Unregistered Type I exemption will rarely help a lending vehicle. Such a company should check whether it qualifies as a Core Investment Company or restructure so it does not meet the 50-50 test.
What is the deadline for deregistration?
Existing NBFCs that meet the Unregistered Type I criteria can apply for deregistration through RBI's PRAVAAH portal within six months of 1 July 2026, that is, by 31 December 2026. Entities that become eligible later may apply later.
Are loans from the parent company treated as public funds?
Generally, yes. RBI's definition of public funds is broad and covers inter-corporate deposits, bank finance, debentures, commercial paper and other outside funds, and the 2026 amendment clarifies that funds received through group entities that themselves access public funds are indirect public funds. Commentators note that RBI declined to exclude intra-group and promoter loans.
How does the group aggregation rule work?
If a group has more than one Unregistered Type I NBFC, their asset sizes are added together. If the total reaches ₹1,000 crore, every one of them must register with RBI as a Type I NBFC.
What must an Unregistered Type I NBFC do every year?
Pass a board resolution at the start of each financial year confirming it will not access public funds or have a customer interface, keep its asset size below ₹1,000 crore, and disclose its status in the notes to its financial statements. Its statutory auditor must report any breach directly to RBI.
Can an Unregistered Type I NBFC invest overseas?
Not freely. To invest overseas in the financial services sector it must first register as a Type I NBFC and obtain RBI's prior approval. Overseas investment in the non-financial sector is not permitted for it.
Is a pure investment holding company affected?
Yes. A holding company that meets the 50-50 test is an NBFC unless an exemption applies. It may qualify as an Unregistered Core Investment Company or, if it has no public funds and no customer interface and assets below ₹1,000 crore, as an Unregistered Type I NBFC.
Does filing a deregistration application end our compliance obligations?
No. RBI has stated that filing the application does not cancel the Certificate of Registration. The company must keep complying and filing returns until RBI communicates its decision.
Can a foreign-owned Indian company use the exemption?
The exemption is not limited by ownership, but foreign-owned groups often fund Indian entities with external commercial borrowings or parent loans, which will usually count as public funds. Equity funding and the group's overall leverage need careful review before relying on the exemption.
Disclaimer: This article reflects the position as at 16 October 2026 and is provided for general information only. It does not constitute legal or regulatory advice or create a professional relationship. It is based on the RBI (Non-Banking Financial Companies – Registration, Exemptions and Framework for Scale Based Regulation) Amendment Directions, 2026 dated 29 April 2026, RBI's press release of 30 June 2026 and published professional commentary; interpretations of "public funds" and "customer interface" summarised here reflect practitioner analysis and may be refined by RBI FAQs or future directions. Please refer to the official RBI texts and consult a qualified professional before acting. In accordance with the rules of the Bar Council of India, this content is not intended as advertisement or solicitation.