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The Reserve Bank of India (RBI) has issued draft directions proposing to exempt certain small non-banking financial companies (NBFCs) from mandatory registration, citing their lower risk profile and limited systemic impact.
The draft norms are open for public comments until 4 March and are proposed to take effect from 1 April.
Key Proposal
NBFCs meeting the following criteria may be exempted from registration with RBI:
- Do not accept public funds
- Have no customer interface
- Have an asset size below ₹1,000 crore
These entities will be categorised as “Unregistered Type I NBFCs.”
Rationale
According to RBI:
- Such NBFCs primarily invest their own funds.
- They pose minimal systemic risk.
- Concerns relating to customer protection are not relevant.
The move is intended to reduce compliance burden and improve ease of doing business.
Scale-Based Regulation (SBR) Framework
In October 2021, RBI introduced the Scale-Based Regulatory Framework (SBR) for NBFCs, classifying them into:
- Base Layer (Type I NBFCs)
- Middle Layer
- Upper Layer
- Top Layer
Type I NBFCs (base layer) were recognised as low-risk entities deserving lighter regulation. The present draft operationalises this distinction by offering exemption from registration to eligible entities.
Definitions Clarified by RBI
Public Funds
Includes:
- Any funds from outside sources
- Indirect funds via associates or group entities
- Loans from directors or shareholders (treated as public funds)
Customer Interface
Includes:
- Lending
- Providing guarantees
- Offering financial products/services
- Transactions with group entities, directors, or shareholders
Exception:
- Employee loans provided under employment terms (non-commercial) are excluded.
