RBI's 2026 NBFC Framework: Type I/II Classification & ₹1L Cr Upper Layer
The RBI's 2026 amendment to NBFC Scale-Based Regulation introduces Type I/II classification and replaces parametric scoring with a hard ₹1 lakh crore asset threshold for Upper Layer status. Holding companies and intra-group lenders may now qualify for an Unregistered Type I category, eliminating RBI registration requirements.
CA Harun Raaj
Chartered Accountant · Harun Raaj & Associates
Legal basis: RBI Draft Amendment Directions to NBFC Registration Exemptions and Framework for Scale-Based Regulation, 2026 — Effective: July 1, 2026 (Upper Layer threshold); December 31, 2026 (deregistration window, per secondary source). Source: https://www.mondaq.com/india/financial-services/1751636/rbi-notifies-draft-rbi-ecb-filings))-nbfc-registration-exemptions-and-framework-for-scale-based-regulation-amendment-directions-2026. Last reviewed by CA Harun Raaj: January 2025.
What Changed — and Why It Matters
The Reserve Bank of India notified draft amendment directions to the NBFC Scale-Based Regulation (SBR) framework on April 29, 2026. Two structural changes reshape compliance obligations for thousands of Indian non-banking finance companies.
First, the framework now formally classifies every NBFC as either Type I (does not raise public funds and has no customer interface) or Type II (raises public funds or deals directly with customers). A new Unregistered Type I NBFC category permits certain entities—particularly promoter holding companies—to exit the RBI registration requirement entirely.
Second, the Upper Layer threshold shifts from a parametric scoring system to a single hard metric: ₹1,00,000 crore in total assets, effective July 1, 2026. This change eliminates the opacity that previously caught smaller, complex NBFCs in the Upper Layer supervision regime.
Key point: NBFC classification and regulatory burden now depend on two clear factors: asset size (₹1 lakh crore for Upper Layer) and public funding presence (Type I vs Type II).
The Four-Layer SBR Framework — Context
The SBR framework (introduced 2023) segments all NBFCs into four regulatory layers based on risk profile. The 2026 amendment preserves this structure but clarifies entry criteria:
Before this amendment, Upper Layer classification relied on parametric scoring combining asset size, liability structure, interconnectedness, market exposure, and business complexity. This opacity meant a smaller NBFC with a complex liability structure could be classified Upper Layer despite lacking the balance-sheet depth to absorb the compliance cost. The new ₹1 lakh crore ceiling removes this discretionary layer for the vast majority of NBFCs.
Change 1: Type I vs Type II — New Unregistered Exit Route
Type I NBFCs neither raise funds from the public nor interact directly with end customers. Examples include a company lending only to group entities, holding shares in subsidiaries, or providing intra-group financial accommodation — funded wholly from its own equity capital.
Type II NBFCs raise public deposits, borrow from retail fixed-deposit holders, or operate a customer-facing lending book.
The material innovation is the Unregistered Type I NBFC classification. The draft directions propose that certain Type I entities—particularly promoter-group investment holding companies whose sole activity is equity ownership in group companies—may apply for exemption from the obligation to obtain a Certificate of Registration from the RBI.
Who This Affects
- Promoter holding companies: If a promoter group's holding company restricts its business to shareholding in group entities with no public deposits or public lending, it may qualify for Unregistered Type I status
- Intra-group financial intermediaries: Entities extending loans only to group companies from their own capital
- All new NBFC applicants: Must determine Type I or Type II classification at the point of registration application
Deregistration Opportunity
A qualifying Unregistered Type I NBFC may apply for deregistration by December 31, 2026 (verification required from final circular). Deregistration removes:
- RBI's mandatory Certificate of Registration requirement
- Minimum Net Owned Funds (NOF) maintenance obligation of ₹10 crore (under RBI regulatory framework)
- Quarterly NBS-7 return filing
- Ongoing compliance with RBI Master Directions on NBFC conduct
This represents a material simplification for promoter holding companies that were previously required to file quarterly regulatory returns despite having no public customer base or systemic risk profile.
Change 2: Upper Layer = ₹1 Lakh Crore Assets (Effective July 1, 2026)
The parametric framework allowed an NBFC to score into the Upper Layer through complexity even with a modest balance sheet. The new rule is categorical: total assets of ₹1,00,000 crore or above triggers Upper Layer classification on asset size alone.
The RBI retains discretion to classify any NBFC as Upper Layer on qualitative grounds (interconnectedness, systemic risk, asset concentration). But for NBFCs below the ₹1 lakh crore ceiling, regulatory certainty replaces the opacity of parametric scoring.
Illustrative Scenario
Example: Ramesh Holdings Pvt Ltd is a promoter group company holding 65% equity in three operating companies across auto-ancillary manufacturing and processed foods. It has:
- No external depositors
- No retail customers
- No lending book outside the group
- Total assets: ₹12 crore
Under the pre-2026 parametric framework, Ramesh Holdings was classified as a registered NBFC-ND (non-deposit taking) and filed quarterly NBS-7 returns with the RBI.
Under the 2026 amendment, Ramesh Holdings qualifies as Unregistered Type I (no public funds, no customer interface) and may apply for deregistration by December 31, 2026—eliminating a regulatory overhead entirely disproportionate to its actual risk profile or asset base.
Practical Compliance Timeline
- Now (January 2025): Request current RBI classification status; audit NBFC for Type I vs Type II criteria
- By July 1, 2026: Upper Layer threshold of ₹1 lakh crore becomes effective; all classification determinations switch to asset-size metric
- By December 31, 2026: Deregistration window closes for Unregistered Type I NBFCs
- Post-January 2027: Unregistered Type I entities no longer eligible for deregistration; must remain under RBI registration or seek formal exemption via different route
What to Do Now
- Obtain your current RBI classification letter — If your NBFC was parametrically scored into the Upper Layer with assets below ₹1 lakh crore, formally request your revised classification from the RBI
- Audit against Type I criteria — Investment and holding companies should map their current activities (deposits accepted? customer lending? public fundraising?) against the Type I definition
- Flag the deregistration window — December 31, 2026 is the reported close date for Unregistered Type I deregistration applications; verify from the final RBI circular before committing to a deregistration strategy
- Confirm the final circular — All reliance on this summary should be cross-checked against the final circular published on rbi.org.in, which may contain amendments to the draft provisions discussed here
I'm CA Harun Raaj, Visakhapatnam. If your NBFC is affected by these changes or you are considering deregistration, reach out for a confidential compliance review.
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See Also
Frequently Asked Questions
What is the difference between Type I and Type II NBFC under the 2026 framework?+
Type I NBFCs neither raise funds from the public nor have a customer-facing business; they typically function as holding or intra-group lending entities. Type II NBFCs raise public deposits, borrow from retail fixed-deposit holders, or operate customer-facing lending. This distinction determines eligibility for the new Unregistered Type I deregistration route.
Can my NBFC apply for deregistration as an Unregistered Type I entity?+
Yes, if your NBFC meets Type I criteria (no public deposits, no customer interface) and qualifies under the Unregistered category (typically promoter holding companies). The deregistration window closes on December 31, 2026 (per secondary reports; verify from final RBI circular). Consult your compliance advisor to assess eligibility.
When does the ₹1 lakh crore Upper Layer threshold take effect?+
July 1, 2026. From that date, Upper Layer classification is determined by total assets of ₹1 lakh crore or more, replacing the previous parametric scoring system. The RBI retains discretion to classify an NBFC as Upper Layer on qualitative grounds.
What happens to my NBFC's NOF requirement if I deregister as Type I?+
The RBI's mandatory ₹10 crore minimum NOF requirement applies to registered NBFCs. An Unregistered Type I NBFC that deregisters would no longer be subject to this RBI-specific requirement. However, other statutory obligations under the Companies Act and tax law remain applicable.
If my NBFC has ₹800 crore in assets, am I in the Upper Layer?+
No. Under the new asset-based metric effective July 1, 2026, an NBFC with ₹800 crore in total assets is below the ₹1 lakh crore Upper Layer threshold and would be classified in the Middle or Base Layer based on size. Check your RBI classification letter for confirmation.
Will deregistering as Type I affect my NBFC's eligibility for CGTMSE guarantee coverage?+
CGTMSE CGS-II covers loans from Micro and Small Enterprises lending institutions (MLIs), including registered NBFCs. Deregistration would typically end MLI status, affecting CGTMSE guarantee eligibility. Factor this into your deregistration decision if CGTMSE coverage is operationally important.
Where can I find the final RBI circular on the 2026 NBFC amendment?+
The final circular should be published on rbi.org.in. The summary above is based on secondary legal commentaries of the draft directions. Always verify the exact provisions, deadlines, and exemption criteria from the official RBI circular before taking compliance action.
Do Unregistered Type I NBFCs still have to comply with other laws like the Companies Act and PMLA?+
Yes. Exemption from RBI registration does not exempt an Unregistered Type I NBFC from the Companies Act, Income Tax Act, Prevention of Money Laundering Act, or other applicable statutory obligations. The deregistration scope is specific to RBI regulatory requirements.
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