RBI proposes stringent draft guidelines for de-registration of type-1 NBFCs

The Reserve Bank of India (RBI) issued strict draft regulations on Tuesday concerning the de-registration process for Type-1 non-banking finance companies (NBFCs) holding assets below ₹1,000 crore.

Public comments on the proposed framework must be submitted by March 4, 2026. The draft guidelines permit Type-1 NBFCs to apply for license cancellation until September 2026.

Eligible existing NBFCs operating without public funds or direct customer engagement as part of their business strategy, and maintaining assets under ₹1,000 crore, may submit de-registration applications before September 30, 2026,” stated the central bank.

The classification ‘Type-1 NBFC‘ refers to registered entities that neither accept public deposits nor maintain customer-facing operations, holding specific RBI certification.

Regulators clarified that any Type-1 NBFC seeking public financing or customer interaction must obtain reclassification as a ‘Type-2 NBFC’ through proper registration channels.

Companies seeking de-registration must secure annual board approval confirming their continued avoidance of public funds and customer-facing activities throughout the fiscal year.

External auditors must file formal violation reports with regulators whenever companies breach conditions regarding public funds or customer engagement.

Rigorous Compliance Requirements

Vinod Kothari, director at Vinod Kothari Consultants, observed: “While NBFC registration posed challenges previously, the new exit protocols introduce equally demanding compliance hurdles.”

The RBI will mandate thorough review of financial records spanning three years preceding de-registration requests. Audits must confirm complete absence of public fund usage—including director/shareholder loans—and demonstrate no lending activities to external parties or group entities.

Regulators explicitly defined ‘customer interface’ to encompass all client-facing services including credit facilities, guarantees—even those benefiting corporate groups, shareholders, or directors—alongside any customer-service provisions.

Notably, capital injections from directors or shareholders will now categorize as public funds, potentially disqualifying numerous promoter-funded NBFCs from eligibility.

Published on February 10, 2026