The September 2026 edition of NBFC FinSight brings together key regulatory, monetary policy, registration, customer conduct, Re-KYC and deregistration developments that are shaping the compliance and operating landscape for Non-Banking Financial Companies in India.
1. Evolving Credit for Standard Loans: RBI’s Proposed Shift Away from Revolving Credit
The Reserve Bank of India’s proposed changes to NBFC credit facilities signal an important shift in the way standard loans may be structured in the future. The proposal favours fixed-term credit structures and seeks to restrict the general use of automatic revolving or reusable credit features. For NBFCs, this is not simply a documentation change; it may affect product architecture, customer experience, underwriting systems, digital lending arrangements and the way credit limits are managed throughout the loan lifecycle. The September issue of NBFC FinSight highlights that NBFCs should begin examining products that presently allow redraw, revolving limits or repeated utilisation after repayment.
What is changing?
Under the proposed approach, standard NBFC lending would increasingly move toward clearly defined term-loan structures. In a conventional term loan, the sanctioned amount is disbursed and repaid over an agreed period. Once principal is repaid, that amount does not automatically become available for fresh borrowing. Revolving facilities operate differently because repayments can restore the customer’s available limit, allowing repeated drawdowns without creating an entirely new credit facility each time.
The draft proposal therefore appears designed to create greater clarity around how much has been borrowed, how long the facility will remain outstanding and how repayment will take place. It also aims to reduce ambiguity between a normal loan and a continuing credit line.
Products that may require closer review
NBFCs should particularly examine products that depend on reusable or redraw functionality, including:
- Digital personal-credit products with reusable sanctioned limits.
- Consumer-finance products where repayment automatically restores borrowing capacity.
- Certain BNPL arrangements involving repeated utilisation of one limit.
- Fintech-NBFC partnership products built around instant redraw or revolving functionality.
- Loan products where customers can repeatedly borrow without a fresh sanction process.
The impact will depend on how the product actually operates rather than merely what it is called. A facility described commercially as a “loan” may still behave like revolving credit if the customer can repeatedly draw against the same reinstated limit.
Why the proposal matters to NBFCs?
The proposed change could require NBFCs to revisit product design, underwriting policies, system logic and customer documentation. Loan-management systems may need to distinguish more clearly between term loans and facilities that permit redraw. Borrower-facing applications may also need to stop displaying a continuously reusable balance if the final regulatory framework does not permit that structure.
For digital lenders, the impact may be even wider. Technology workflows, APIs with fintech partners, automated sanction rules and borrower dashboards could all require modifications. The commercial structure of some lending partnerships may also need reassessment if the existing model depends on repeated utilisation of one sanctioned credit limit.
What NBFCs should begin doing now?
The proposal is not merely an issue for the compliance department. Product, credit, risk, legal, operations and technology teams should jointly review the current lending portfolio. A practical internal exercise would include identifying every product that allows revolving, reusable or redraw functionality; mapping the systems that support those features; reviewing loan agreements and sanction documentation; checking whether fintech or lending-service-provider arrangements rely on such functionality; and estimating the business impact if these products have to be converted into fixed-term structures.
The newsletter also emphasises the need to review product agreements, underwriting policies and workflows so that NBFCs are prepared if the proposal is finalised.
What this means for borrowers?
From a borrower’s perspective, fixed-term lending generally provides greater certainty. The sanctioned amount, repayment obligation and tenure are easier to understand. It may also reduce the risk of continuous credit utilisation without a clearly defined end point. However, customers who are accustomed to flexible reusable limits may experience a change in how quickly they can obtain further credit. NBFCs will therefore need to communicate any product changes clearly so that borrowers understand whether a fresh loan application or sanction will be required.
The broader regulatory message
The RBI proposal reflects a wider focus on product discipline and transparent credit delivery. The regulatory objective appears to be that the structure of credit should be as carefully governed as the decision to extend credit itself. For NBFCs, the key message is clear: growth in lending should be supported by clearly defined products, suitable controls and systems that reflect the actual legal and economic nature of the facility.
2. Repo Rate Held at 5.25%: What the Neutral Stance Means for NBFCs
The Reserve Bank of India’s Monetary Policy Committee has retained the policy repo rate at 5.25%, while maintaining a neutral monetary policy stance. The Standing Deposit Facility rate remains at 5.00%, and both the Marginal Standing Facility rate and Bank Rate remain at 5.50%. The September edition of NBFC FinSight presents this decision as one of policy stability, but also cautions NBFCs to remain alert to inflation risks, global uncertainty and changing domestic growth conditions.
Policy snapshot
| Policy indicator | Current level |
|---|---|
| Repo Rate | 5.25% |
| Standing Deposit Facility | 5.00% |
| Marginal Standing Facility | 5.50% |
| Bank Rate | 5.50% |
| Policy stance | Neutral |
The significance of the neutral stance is that RBI is not committing itself firmly to either an easing or tightening path. Instead, it retains the flexibility to react to future inflation, growth, liquidity and global developments.
Why this matters for NBFC funding
Although NBFCs do not depend entirely on RBI funding, monetary policy still influences their cost of funds. Bank borrowings, bond yields, commercial paper, securitisation rates and other funding channels respond directly or indirectly to broader interest-rate conditions. An unchanged repo rate therefore provides some near-term visibility, but it does not mean every NBFC will experience exactly the same funding cost. Credit rating, liquidity profile, asset quality, lender confidence, maturity mismatches and market conditions continue to play an important role. A large highly rated NBFC may experience relatively stable borrowing conditions, while a smaller institution with greater dependence on short-term bank funding may face different pricing pressure even when the repo rate itself has not moved.
The real question: How well can the Balance Sheet absorb change?
For NBFC management, the important issue is not simply whether the next repo decision will be a cut or an increase. The stronger question is whether the balance sheet remains resilient under multiple interest-rate scenarios. Treasury and ALM teams should therefore examine refinancing risk, maturity concentration, floating-rate liabilities, fixed-rate assets and liquidity buffers. A company that borrows for short periods but lends for longer tenures can face pressure if refinancing becomes more expensive. Similarly, rapid asset growth funded by concentrated sources can create vulnerability even during a period of stable monetary policy.
Lending rates and borrower impact
An unchanged repo rate usually supports near-term stability in lending conditions. However, NBFC customers should not assume that every loan rate will remain unchanged. Loan pricing depends on the NBFC’s own cost of funds, borrower risk, operating costs, credit losses and product strategy. NBFCs should therefore continue to communicate clearly whether loans are fixed-rate or floating-rate, how resets occur, and what factors may change the borrower’s repayment burden.
What should NBFCs monitor from here?
Rather than focusing on one policy announcement, NBFCs should keep watch on a broader set of indicators:
- Inflation, particularly whether price pressures remain within a manageable range.
- Domestic credit demand and consumption.
- Market liquidity and banking-system liquidity.
- Global interest-rate trends and energy prices.
- Debt-market yields and refinancing conditions.
- Changes in spreads for NBFC borrowings.
- Future MPC guidance on the balance between inflation and growth.
For management teams, the present policy environment offers visibility, but not certainty. A neutral stance should be used as an opportunity to strengthen liquidity and funding resilience rather than as a reason to delay preparation for changing market conditions.
For reference, the relevant RBI notification/source document is provided below for readers who wish to review the original regulatory text in detail.
3. NBFC Registration: A Practical Roadmap to Becoming a Regulated Financial Institution
Obtaining RBI registration is the foundational step for a company that intends to carry on applicable NBFC business in India. A company cannot rely merely on incorporation under the Companies Act to operate as an NBFC. Where registration is required, the entity must obtain a Certificate of Registration under Section 45-IA of the RBI Act, 1934 before commencing or carrying on the relevant non-banking financial business. The newsletter presents registration as the point at which an entity formally enters the RBI regulatory framework.
Stage 1: Determine whether NBFC registration is actually required
The first step is to understand the proposed business model. Companies intending to undertake financial activities such as lending, investment, hire-purchase, leasing or asset finance may need to assess whether their principal business falls within the NBFC framework. This assessment should happen before commercial launch. A company should not begin substantial lending operations and only later examine whether RBI registration was required. Exempt categories should also be reviewed carefully because some entities undertaking financial activities may be governed through a different regulatory route.
Stage 2: Build the eligibility foundation
The September newsletter identifies several core eligibility conditions that a proposed NBFC should have in place.
Key conditions include:
- Minimum Net Owned Fund: The newsletter reflects a ₹10 crore NOF requirement for NBFC registration in the relevant mainstream category.
- Fit and proper management: Promoters and directors should meet appropriate standards of integrity, competence and suitability.
- Viable business plan: The proposed business should have clear financial projections, target customers, products, funding plans and growth assumptions.
- Governance framework: Policies relating to credit, compliance, risk management, KYC, customer protection and internal control should not be left until after registration.
- Foreign investment: Up to 100% FDI may be permitted under the automatic route, subject to applicable RBI and sectoral conditions. Foreign investment is therefore an available route, not a mandatory condition for registration.
Stage 3: Prepare for RBI scrutiny
An RBI application should be treated as a regulatory assessment rather than a routine form filing. The regulator may evaluate whether the applicant has sufficient capital, capable management, suitable governance, credible systems and a sustainable business model. Applicants should therefore be ready with complete corporate records, shareholding details, promoter and director information, audited financial information, business projections and relevant policies. Weak documentation can delay the process. More importantly, inconsistencies between the proposed business model and the policies submitted can raise concerns about implementation readiness.
Stage 4: File through PRAVAAH
The newsletter reflects that the application should be filed through the PRAVAAH portal with the prescribed documentation. RBI may thereafter seek clarifications, additional documents or further information before deciding whether to issue the Certificate of Registration. Applicants should therefore maintain a centralised regulatory response team so that RBI queries are answered accurately and consistently.
Stage 5: Prepare for commencement; not just approval
Registration is not the end of the process. The company should be operationally ready to conduct regulated business in accordance with applicable directions. The newsletter notes that the NBFC should commence business within six months after obtaining the CoR. Accordingly, staffing, technology, product documentation, compliance systems and customer processes should ideally be substantially ready before approval is received.
A useful pre-application checklist
Before filing, promoters should be able to answer the following questions confidently:
- Is the proposed entity correctly classified as an NBFC?
- Is the applicable NOF available and properly documented?
- Are the proposed directors and promoters fit and proper?
- Is the business plan commercially realistic?
- Are credit, KYC, grievance, risk and governance policies ready?
- Are funding arrangements consistent with the proposed business?
- Is the technology capable of producing required regulatory records?
- Is there a clear implementation plan for the period immediately after registration?
A strong NBFC application is built around a functioning institution, not simply a completed application form.
4. Responsible Business Conduct & Pricing: Following the Customer Journey from Origination to Recovery
The September newsletter presents Responsible Business Conduct as a complete customer journey rather than a single compliance requirement. From loan origination and pricing to customer communication, recovery and governance, NBFCs are expected to ensure that fair treatment and regulatory oversight are embedded throughout the lending lifecycle. The page also notes that the Third Amendment Directions, 2026 become effective from 1 January 2027.
Stage 1: Loan Origination: Responsible conduct begins before disbursement
Fair treatment should start at the point where a customer is assessed for credit. Lending policies should be clear, underwriting decisions should follow approved criteria, and customers should not be pushed toward products that do not suit their financial circumstances. The newsletter highlights the wider scope of responsible business conduct and stronger governance in lending and recovery. This means that origination controls should be documented, consistently applied and subject to management oversight.
Stage 2: Pricing and Disclosure: The customer must understand the true cost
Pricing is one of the most sensitive areas in lending. Interest rates, fees and charges should be clearly communicated and supported by appropriate governance. Customers should understand the financial commitment before accepting the loan. Ambiguous fees, unexpected deductions or unclear charges can create both customer complaints and regulatory risk. For NBFCs, this means pricing committees, product teams and compliance teams should work together. Product profitability cannot be considered separately from fairness and disclosure.
Good pricing governance should include:
- Documented pricing methodology.
- Clear treatment of fees and charges.
- Consistent customer disclosures.
- Internal controls around deviations.
- Review of complaints linked to pricing.
- Monitoring of product-level customer outcomes.
Stage 3: Customer Communication: Compliance should be understandable
Responsible conduct requires more than sending information. Communication must be understandable. Customers should receive clear information regarding repayment obligations, fees, outstanding amounts, important changes and grievance channels. Complex legal language should not be used as a substitute for meaningful disclosure. Digital lenders should also ensure that app screens, notifications and automated messages communicate material information accurately rather than relying only on long-form documentation.
Stage 4: Recovery and Grievance Redressal: Collection must remain responsible
The newsletter places considerable emphasis on recovery governance, monitoring of outsourcing arrangements and proper record-keeping. Recovery is a legitimate part of lending, but the manner in which it is carried out is equally important. NBFCs should monitor recovery agencies, maintain records of borrower interactions and ensure that grievance complaints are investigated promptly. Outsourcing the recovery function does not eliminate the NBFC’s responsibility. The regulated entity must be able to demonstrate control over the conduct of agencies acting on its behalf.
Stage 5: Governance and Oversight: The Board must see the whole picture
Responsible conduct ultimately depends on governance. Policies, audits, reporting systems and management information should help senior leadership understand whether customer-facing practices are operating as intended. Board-level oversight should not focus only on loan growth, collections and profitability. It should also examine customer complaints, pricing deviations, recovery-agent conduct, internal audit findings and compliance exceptions. Where conduct failures repeatedly arise, the issue should be treated as a systemic governance problem rather than a series of isolated complaints.
The message for NBFCs
Responsible business conduct works best when it is built into the entire customer journey. Lending, pricing, communication, servicing, recovery and complaints should not operate as separate compliance silos. The strongest NBFCs will be those that can demonstrate that customer fairness is supported by governance, systems, documentation and actual day-to-day behaviour.
For reference, the relevant RBI notification/source document is provided below for readers who wish to review the original regulatory text in detail.
5. Re-KYC in Focus: Frequently Asked Questions for NBFCs
The September issue of NBFC FinSight describes Re-KYC as an ongoing customer-compliance exercise rather than a one-time formality. It highlights risk-based periodicity, simplified update modes and timely follow-up as the core elements of keeping customer information current.
Why is Re-KYC necessary if KYC was completed when the customer joined?
Re-KYC is required as customer information changes, such as addresses changing, identification documents expiring or being renewed, business activities evolving, and customer risk profiles changing over time. Periodic KYC updates help the NBFC ensure that the information being used for customer due diligence remains accurate and reliable.
How frequently should customer KYC be updated?
The newsletter reflects a risk-based approach. Higher-risk customers require more frequent attention than lower-risk customers. The objective is not to repeatedly collect the same information without reason. Instead, NBFCs should align periodicity with the customer’s risk classification and the requirements of the Board-approved KYC policy.
What if the customer’s information has not changed?
Where permitted, a simplified self-declaration or update process may be used instead of requiring the customer to submit the entire KYC package again. This helps reduce unnecessary inconvenience while still allowing the NBFC to confirm that its records remain current.
What if the customer has changed address?
The NBFC should obtain the required updated information and maintain the revised address in its records. Where the applicable framework permits a simplified process, the customer should not be forced through a complete new-account onboarding exercise merely because one field has changed. However, the institution should retain appropriate evidence and follow its verification process.
Why does Re-KYC matter from a risk-management perspective?
Outdated information can weaken transaction monitoring and anti-money-laundering controls. If an NBFC continues to rely on old information, it may no longer understand the customer’s present occupation, business, address, ownership structure or risk profile. Re-KYC therefore supports ongoing due diligence rather than merely satisfying an administrative requirement.
How can NBFCs improve the customer experience?
A good Re-KYC process should be easy to understand and easy to complete. Customers should receive advance communication, simple instructions and multiple permitted channels for completing the update. NBFCs may consider integrating Re-KYC into internet portals, mobile applications, branches and other approved channels so that customers are not forced into an unnecessarily cumbersome process.
What should internal compliance teams monitor?
Compliance teams should maintain clear dashboards showing customers whose KYC is due, communications already sent, overdue cases, risk classifications and unresolved exceptions. Internal audit should also test whether customers are being updated at the correct frequency and whether the system is accurately identifying due dates.
Final takeaway
The best Re-KYC framework balances two goals: regulatory discipline and customer convenience. An NBFC that keeps records current, follows a risk-based approach and communicates clearly with customers is better positioned to manage fraud, AML risk and supervisory expectations without creating unnecessary operational friction.
6. NBFC Deregistration Window: A Decision Guide for Passive NBFCs Before 31 December 2026
For certain passive NBFCs, the 2026 regulatory framework creates an opportunity to simplify their compliance structure through deregistration. The September newsletter explains that entities with no public funds, no customer interface and assets below ₹1,000 crore may be eligible to surrender their Certificate of Registration, subject to the applicable conditions. It also identifies 31 December 2026 as the important date for existing eligible entities. Rather than viewing deregistration simply as a cost-saving exercise, Boards should treat it as a strategic decision about the company’s future business model.
The first question: Are we really a passive NBFC?
A company should begin by examining how it is funded and whether it interacts with customers. A genuinely passive entity is fundamentally different from an NBFC actively raising external funds, lending to customers or building a financial-services business. The exemption is therefore intended for entities whose present and intended activities genuinely fit the lower-risk profile.
The three-gate test
An NBFC considering deregistration should examine three basic eligibility gates.
Gate 1: Public funds
The entity should not avail public funds and should not intend to do so. Management should review the full funding structure rather than considering only whether the company accepts public deposits.
Gate 2: Customer interface
The entity should have no customer interface and should not intend to introduce one. A company planning to begin customer-facing lending shortly after deregistration should therefore reconsider whether deregistration is consistent with its actual business strategy.
Gate 3: Asset size
The asset size should remain below ₹1,000 crore, based on the latest audited balance sheet. Companies operating close to the threshold should also consider future growth rather than relying only on the current figure.
If all three conditions are satisfied, what happens next?
The process should move from eligibility analysis to formal governance action. The newsletter recommends reviewing the three-gate test against the latest audited financial statements, obtaining a Board resolution and statutory auditor’s certificate, filing the application through PRAVAAH, and arranging surrender of the original Certificate of Registration. This means deregistration should be supported by a complete regulatory file rather than a simple management decision.
What does the Board need to consider?
The Board should ask whether the company intends to raise external funding, introduce customer-facing products, restructure the business or expand into financial services in the near future. If the business strategy is likely to move back toward active NBFC operations, deregistration may create unnecessary regulatory complexity later. The decision should therefore consider the next several years rather than only current compliance costs.
What are the practical benefits?
For a qualifying passive entity, deregistration can reduce ongoing NBFC-specific filing, reporting and compliance obligations. This can allow management to focus on the company’s actual business model without maintaining a regulatory structure that no longer reflects its activities. However, deregistration does not mean the entity becomes free from all legal obligations. Corporate law, tax law, accounting requirements and other applicable regulations will continue to apply.
What if the company takes no action?
If the entity remains registered and does not use the available deregistration route, it will continue to operate within the applicable NBFC regulatory framework. This means continuing compliance obligations will remain.
What if the company changes its business later?
If the company subsequently decides to access public funds, establish customer interface or conduct business requiring RBI registration, fresh registration may be required before undertaking those activities. This point is particularly important for group companies and investment entities whose future strategy may change.
Boardroom checklist before taking a decision
Before approving deregistration, the Board should be satisfied that:
- Public-fund exposure has been fully reviewed.
- There is genuinely no customer interface.
- The asset-size threshold is satisfied.
- Audited financial statements support the eligibility analysis.
- The future business plan is consistent with deregistration.
- The statutory auditor is aligned with the eligibility position.
- PRAVAAH documentation is complete.
- The implications of future re-registration have been considered.
For eligible passive NBFCs, deregistration can provide meaningful compliance relief—but only when eligibility has been carefully verified and the long-term business model supports the decision.
