India’s Non-Banking Financial Company sector continues to play an increasingly important role in credit delivery, financial inclusion and specialised lending. At the same time, the regulatory expectations surrounding NBFCs are becoming more structured, more conduct-focused and more closely connected with governance, customer protection and operational controls. The September 2026 edition of NBFC FinSight reflects this changing environment. The issue brings together developments ranging from the structure of NBFC credit products and RBI’s monetary policy stance to registration requirements, Re-KYC, responsible business conduct, sectoral credit growth, deregistration opportunities and important compliance obligations.
For NBFCs, these developments should not be viewed as isolated regulatory updates. Together, they point towards a broader regulatory direction: RBI expects NBFCs to grow, innovate and expand credit access, but within clearly documented product structures, stronger governance systems, fair customer practices and disciplined regulatory reporting. This makes September an appropriate time for management teams to review whether existing business practices are aligned with the direction in which NBFC regulation is moving.
1. The Changing Architecture of NBFC Credit
One of the most important themes in this edition is the changing structure of NBFC credit products. RBI’s proposed approach indicates a movement towards clearer fixed-term credit structures for most lending products, with greater restrictions around revolving or reusable credit arrangements. The newsletter highlights the need for NBFCs to examine whether their existing products rely heavily on revolving limits, reusable credit lines or other structures that may require redesign if the proposed framework is finalised.
This is significant because product design is not merely a commercial decision. The structure of a credit facility affects repayment schedules, documentation, customer communication, underwriting processes, system configuration and ultimately regulatory compliance. A change from reusable or revolving structures to fixed-term facilities could therefore require modifications across multiple departments within an NBFC.
Management teams should begin reviewing products that involve repeated drawdowns, revolving limits or flexible reuse of sanctioned amounts. Particular attention may be required for consumer credit, digital lending products, personal loans and partnership-based lending arrangements. Even if a regulatory proposal has not yet become final, early assessment allows the NBFC to identify which products, agreements and system workflows could be affected.
From a practical perspective, NBFCs should consider:
- identifying products that permit revolving or reusable credit;
- reviewing sanction letters, loan agreements and repayment structures;
- checking whether technology systems can accommodate revised loan structures;
- assessing the impact on customer communication and disclosures;
- reviewing underwriting and repayment-monitoring processes; and
- preparing for policy or documentation changes if the proposed framework is finalised.
The broader message is that the architecture of credit is becoming a regulatory issue in itself. How an NBFC structures a loan may increasingly matter almost as much as how much it lends.
2. RBI Keeps Repo Rate Unchanged at 5.25%
The Reserve Bank of India has kept the policy repo rate unchanged at 5.25% while maintaining a neutral monetary policy stance. The Standing Deposit Facility rate remains at 5.00%, while the Marginal Standing Facility rate and Bank Rate remain at 5.50%. The decision reflects RBI’s cautious approach in balancing inflation risks, domestic growth conditions and global economic uncertainties.
For NBFCs, the unchanged repo rate provides some near-term stability, but it does not mean that funding costs will remain unchanged. Borrowing costs are also influenced by banking system liquidity, bond yields, credit ratings, maturity profiles and market conditions. NBFCs should therefore continue to monitor their cost of funds and ensure that lending rates remain aligned with operating costs, credit risk and expected returns.
The neutral stance also means RBI is keeping its options open and will respond to future developments in inflation, demand, global commodity prices and financial markets. For NBFCs with floating-rate liabilities or significant dependence on bank borrowings, this makes asset-liability management especially important. Any mismatch between borrowing costs and loan repricing can put pressure on margins and liquidity.
The key takeaway is that policy stability offers better visibility, but NBFCs should remain alert to changes in liquidity, funding costs and the broader interest-rate environment. Strong funding diversification, prudent loan pricing and regular review of asset-liability positions will remain essential as the monetary policy outlook evolves.
3. NBFC Registration: More Than Just Obtaining a Certificate
Registration with RBI remains the fundamental regulatory requirement for an entity intending to commence or carry on NBFC business, subject to the applicable statutory framework and exemptions. The newsletter explains that NBFC registration involves the Certificate of Registration under Section 45-IA of the RBI Act, 1934 and also draws attention to incorporation requirements, Net Owned Fund, fit-and-proper standards, business planning, governance and RBI scrutiny.
For promoters, registration should not be approached as a paperwork exercise. RBI’s review of an NBFC application extends far beyond checking whether forms have been filled correctly. The regulator needs to be satisfied that the proposed institution has sufficient financial strength, credible promoters and directors, a viable business model, appropriate governance systems and the operational capability to comply with regulatory requirements after registration.
A well-prepared NBFC application should therefore clearly establish the proposed business model, target customers, products, funding strategy, risk-management framework, governance structure and financial projections. Policies should not be drafted simply because they are required for the application; they should be capable of functioning once the NBFC begins operations.
Promoters should pay particular attention to:
- company incorporation and object clauses;
- applicable Net Owned Fund requirements;
- source of capital;
- fit-and-proper status of promoters and directors;
- business plan and financial projections;
- credit, risk, KYC, outsourcing and governance policies;
- organisational structure and key personnel;
- technology and data systems; and
- readiness to respond to RBI queries and due diligence.
The strength of the initial regulatory foundation often determines how smoothly the NBFC is able to scale later. Obtaining registration is therefore the beginning of the compliance journey, not the end of it.
4. Responsible Business Conduct: Recovery Practices Move Into Focus
The Reserve Bank of India (Non-Banking Financial Companies – Responsible Business Conduct) Third Amendment Directions, 2026 strengthen the regulatory framework governing customer treatment, recovery practices, transparency and accountability across NBFCs. The changes reflect RBI’s continued focus on ensuring that regulated entities maintain fair conduct not only in lending, but also during collection and recovery activities. A key area of focus is the use of recovery agencies and recovery agents. NBFCs remain responsible for the conduct of third parties engaged for recovery-related activities, which means outsourcing does not reduce the institution’s regulatory responsibility. Recovery practices must therefore be supported by clear internal policies, proper supervision and effective grievance-redressal mechanisms.
The amended framework also places greater emphasis on governance, record-keeping, inspection and audit. NBFCs should be able to demonstrate how recovery activities are monitored, how complaints are handled, and how customer interactions are documented. Proper records of recovery communication, agency engagement and escalation processes can become important evidence during internal reviews, audits or regulatory inspections. For management teams, this requires a practical review of existing recovery arrangements. Agreements with recovery agencies, internal collection policies, staff training, monitoring systems and customer communication procedures should be examined to ensure that they are aligned with RBI expectations. The new recovery-related requirements are particularly important because the framework becomes effective from 1 January 2027, giving NBFCs a limited implementation window to close operational gaps.
The broader message is that responsible recovery is now a core governance issue rather than only a collections function. NBFCs that strengthen oversight, maintain proper records and ensure fair treatment of borrowers will be better positioned to reduce conduct risk, protect customer interests and meet RBI’s growing expectations around transparency and accountability.
5. Re-KYC: Keeping Customer Records Current
Re-KYC remains another major operational priority for NBFCs. RBI’s KYC framework requires regulated entities to periodically update customer information according to a risk-based approach. The newsletter highlights that periodic KYC updates are required at least once every two years for high-risk customers, eight years for medium-risk customers and ten years for low-risk customers. The purpose of Re-KYC is not merely to refresh identity documents. Updated customer records support anti-money laundering controls, improve the quality of customer due diligence, help detect unusual activity and reduce the risk of regulatory gaps.
RBI’s approach also recognises that Re-KYC should not unnecessarily inconvenience customers. Where there is no change in KYC information, permitted self-declaration mechanisms may be used. Where only the address has changed, the customer may provide an updated declaration subject to the required confirmation process. For NBFCs, this means that Re-KYC needs to be both compliant and customer-friendly. A poorly designed process may result in customers failing to update their information, unnecessary account restrictions, repeated follow-ups and avoidable complaints.
A sound Re-KYC framework should therefore include:
- customer risk categorisation;
- automated identification of upcoming Re-KYC due dates;
- advance notices and reminders;
- accessible digital and physical update channels;
- proper acknowledgement of customer submissions;
- timely updating of internal systems;
- documentation and audit trails;
- escalation mechanisms for overdue cases; and
- periodic management review of pending Re-KYC cases.
Re-KYC should be treated as an ongoing customer-compliance programme rather than an exercise carried out only when a deadline approaches.
6. NBFC Credit Growth Strengthens to 14.9% in July 2026
RBI’s sectoral credit data for July 2026 provides an important picture of where NBFC lending is expanding. The newsletter records overall NBFC credit growth of 14.9% year-on-year in July 2026, compared with 10.6% a year earlier. The underlying sectoral trends are particularly important. Agriculture and allied activities recorded 18.0% year-on-year growth, compared with 5.4% a year earlier. Retail loans grew even faster at 21.4%, compared with 13.7% in the previous year. Industry credit grew by 7.4%, while services credit moderated to 15.2% from 24.5% a year earlier.
Within services, commercial real estate continued to show strong expansion, while growth in trade and transport operators slowed. Within retail lending, housing and loans against gold jewellery displayed stronger momentum, while vehicle loans maintained relatively steady growth. These numbers show that NBFC credit growth remains healthy but increasingly uneven across sectors. Retail and agriculture are currently contributing strongly to overall growth, while industry and parts of the services sector are expanding at a more moderate pace.
For NBFCs, this has strategic implications. Strong growth in a segment can create opportunities, but it can also lead to concentration risk if underwriting standards are relaxed in pursuit of market share. Management should therefore consider growth together with asset quality, capital consumption, provisioning, collateral risk and customer repayment capacity. Sectoral data should be used to support portfolio decisions, not merely to identify where competitors may be expanding.
7. NBFC Deregistration: A Time-Sensitive Opportunity for Certain Passive Entities
One of the most practically important developments covered in this issue is the deregistration opportunity available to certain passive NBFCs. The newsletter highlights that eligible entities with no public funds, no customer interface and assets below ₹1,000 crore may seek deregistration through RBI’s PRAVAAH platform. For existing eligible entities, 31 December 2026 is the key date to keep in view.
This development can be particularly relevant for group holding companies, promoter investment vehicles, family investment entities and passive treasury companies that may have historically remained registered as NBFCs because of the composition of their financial assets even though they do not conduct customer-facing financial business. For eligible entities, surrendering the Certificate of Registration may substantially reduce the continuing regulatory burden associated with remaining a registered NBFC. However, deregistration should not be approached casually. The eligibility conditions need to be reviewed carefully and supported with proper documentation.
An entity considering deregistration should examine:
- whether it has availed any public funds;
- whether any customer interface currently exists;
- whether the company intends to introduce either public funds or customer interface in future;
- whether total assets are below the prescribed threshold;
- historical audited financial statements;
- Board approval;
- statutory auditor certification;
- PRAVAAH application requirements; and
- surrender of the original Certificate of Registration where required.
The 31 December 2026 date makes this particularly important. Companies that may qualify should begin their review well in advance rather than waiting until the final weeks of December. Deregistration can provide compliance relief, but only after careful verification of the entity’s regulatory position.
What Should NBFC Management Prioritise Now?
Taken together, the developments in this edition suggest several immediate priorities for NBFC leadership. The organisation should review its lending-product structures, monitor funding costs and liquidity, strengthen recovery and customer-conduct controls, ensure Re-KYC records remain current, analyse sectoral credit concentration and identify whether any passive group entities may qualify for deregistration.
The following management checklist can be useful:
- Credit products: Identify revolving or reusable structures that may be affected by future RBI requirements.
- Funding: Monitor borrowing costs, liquidity and asset-liability mismatches.
- Registration: Ensure existing and proposed NBFC structures continue to meet regulatory requirements.
- Recovery: Review recovery agencies, agreements, monitoring systems and evidence trails.
- Re-KYC: Track due customers and avoid last-minute compliance backlogs.
- Portfolio strategy: Compare internal loan growth with RBI’s latest sectoral credit trends.
- Deregistration: Assess eligibility immediately where the entity has no public funds or customer interface.
- 31 December 2026: Treat this as an important internal milestone for potentially eligible passive NBFCs.
- Compliance calendar: Maintain a centralised tracker with clear responsibility for every applicable return.
- Board oversight: Ensure important regulatory developments and compliance exceptions are periodically placed before senior management and the Board.
Disclaimer: This article is intended for general informational purposes and should not be treated as legal, regulatory, financial or professional advice. Applicability of regulatory and compliance requirements should be independently verified for the specific NBFC and its regulatory classification.
