The Reserve Bank of India’s has proposed regulatory changes for non-banking finance companies could lead to a substantial consolidation of the sector, potentially cutting the number of registered NBFCs by half or more, according to industry experts.
Under the proposal, Type-1 NBFCs with assets below Rs 1,000 crore would be exempt from mandatory registration with the central bank, subject to specified conditions. These entities are characterised by the absence of public fund exposure and customer-facing operations. If implemented, the move could significantly rationalise the NBFC landscape, which currently comprises more than 9,000 registered entities.
Vinod Kothari, Director, Vinod Kothari Consultants, said that pure-play investment companies, particularly those that are fully equity-funded and do not interact with customers, were never the primary risk segment the NBFC registration framework was designed to regulate. Excluding such entities from mandatory registration, he said, is a logical step that could streamline oversight and reduce regulatory clutter. Over time, he estimates that the number of registered NBFCs could fall to half the current level or even lower.
He added that the defining characteristics of Type-1 NBFCs, no access to external funds and no customer interface, may prompt many investment companies to realign their liability structures to remain outside the regulatory perimeter. Customer interaction, he noted, typically arises only when lending activity is involved.
The proposal is part of the RBI’s scale-based regulatory framework, which aims to apply differentiated regulation depending on the risk profile of NBFCs. Entities that neither raise public funds nor deal directly with customers fall into the least-regulated category under this framework.
In a separate measure aimed at easing operational constraints, the RBI has also proposed removing the requirement for gold loan-focused NBFCs to seek prior approval before opening new branches once they cross the 1,000-branch threshold. The move is expected to benefit major gold loan lenders such as Muthoot Finance, Muthoot Fincorp and Manappuram Finance.
V P Nandakumar, Chairman and Managing Director, Manappuram Finance, said the proposal reflects regulatory confidence in the improved governance and prudential standards of well-regulated NBFCs. He added that the change would offer greater operational flexibility, enabling lenders to expand more efficiently, particularly in semi-urban and underserved regions.
Umesh Revankar, Executive Vice-Chairman, Shriram Finance, said several of the proposed measures are developmentally significant for the NBFC sector. He noted that exempting low-risk NBFCs from registration and removing prior approval requirements for large gold loan lenders would reduce compliance burdens and allow management teams to focus more on credit delivery and risk management.
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