During the year 2026-27, the management of following three NBFCs approached their statutory auditor for advice regarding their registration status…

CA Final · Advanced Auditing, Assurance and Professional Ethics · MTP · November 2026
During the year 2026-27, the management of following three NBFCs approached their statutory auditor for advice regarding their registration status under the amended RBI framework. (i) Alpha Finance Ltd. does not avail public funds and does not have any customer interface. Its latest audited balance sheet shows total assets of ₹ 850 crore. The company intends to continue with the same business model in the long term. (ii) Beta Holdings Ltd. also does not avail public funds and does not have any customer interface. However, its latest audited balance sheet shows total assets of exactly ₹ 1,000 crore. The management contends that since the threshold is stated as ₹ 1,000 crore, it should also qualify for exemption from registration. (iii) Gamma Finance Ltd. has assets of only ₹ 300 crore. It neither has a large balance sheet nor accepts deposits. However, it has access to public funds through its group structure and also has a customer interface. The managements of all three entities seek your advice on whether they are required to obtain or continue holding a Certificate of Registration from the RBI under the Registration Amendment Directions, 2026, effective from 1st July 2026. Advise the managements regarding the applicability of registration requirements to the three NBFCs under the amended framework. Also explain the broad classification into Unregistered Type I NBFC, Type I NBFC and Type II NBFC.

Suggested Answer and Working Notes:

The Reserve Bank of India (Non-Banking Financial Companies – Registration, Exemptions and Framework for Scale Based Regulation) Amendment Directions, 2026, effective from July 1, 2026, introduced a three-category framework for NBFCs based principally on public funds, customer interface and asset size. (i) Unregistered Type I NBFC (Exempt): Non-deposit-taking NBFCs with no public funds, no customer interface and asset size below ₹ 1,000 crore are exempted from the provisions of Sections 45-IA and 45-IC of the RBI Act, subject to the prescribed conditions. Existing NBFCs satisfying the criteria may apply for deregistration by December 31, 2026. (ii) Type I NBFC (Registered): NBFCs with no public funds and no customer interface, but having an asset size of ₹1,000 crore or above, are required to remain registered as Type I NBFCs. (iii) Type II NBFC (Registered): An NBFC which avails public funds or has a customer interface, irrespective of its asset size, is required to be registered as a Type II NBFC. Conclusion: Alpha Finance Ltd.: Since it has no public funds, no customer interface and its asset size of ₹ 850 crore is below ₹ 1,000 crore, it satisfies the basic conditions for the Unregistered Type I NBFC exemption, subject to fulfilment of the other prescribed conditions. Beta Holdings Ltd.: It does not qualify for the exemption because its asset size is exactly ₹ 1,000 crore. The requirement is that the asset size should be less than ₹ 1,000 crore. Therefore, Beta Holdings Ltd. would be required to be registered as a Type I NBFC if it continues without public funds and customer interface. Gamma Finance Ltd.: Its asset size being below ₹ 1,000 crore does not by itself make it eligible for exemption. Since it has access to public funds and has a customer interface, it falls within Type II NBFC and is required to be registered.

Topics: Special Features of Audit of Banks & Non-Banking Financial Companies

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