RBI eases NBFC branch expansion rules in 2026

What RBI changed on NBFC branch expansion

The Reserve Bank of India (RBI) has permitted non-banking financial companies (NBFCs) to open branches without seeking prior approval from the central bank, unless they are specifically restricted. The RBI said the objective of the amended directions is to provide operational flexibility for branch expansion, support ease of doing business, and still ensure regulatory compliance. This marks a shift from the earlier approach where certain categories needed a regulatory nod or prior intimation. The revised norms are effective immediately, as per the RBI’s directions.

The change is broad, but not uniform across the sector. The RBI has retained restrictions for deposit-taking NBFCs depending on financial strength and credit profile. In practice, the new framework is a mix of liberalisation for most entities and a calibrated approach for deposit-taking players with weaker financial markers.

Deposit-taking NBFCs: expansion depends on NOF and rating

Under the directions, deposit-taking NBFCs are treated differently based on net owned funds (NOF) and credit rating. Entities with NOF up to ₹50 crore or a credit rating below AA can open branches or appoint agents only within the state where their registered office is located. Deposit-taking NBFCs with NOF above ₹50 crore and a rating of AA or higher can open branches or appoint agents anywhere in India.

But the RBI has also set a separate restriction for NBFCs that are financially larger but not highly rated. Deposit-taking NBFCs with NOF exceeding ₹50 crore but with a rating below AA will be restricted to opening branches within their home state. This structure links geographic expansion to both balance-sheet strength and external credit assessment.

Why the branch change matters for the sector

Branch expansion rules directly affect how NBFCs scale distribution, collections, and customer servicing. Removing the need for prior RBI approval can reduce administrative friction for entities that are not under specific restrictions. For well-rated, well-capitalised deposit-taking NBFCs, the permission to expand nationwide can make branch planning more predictable.

At the same time, the RBI’s state-only limits for weaker profiles indicate that deposit-taking entities with lower NOF or rating are still expected to grow cautiously. The use of both NOF and credit rating also signals that the regulator is relying on a combination of internal financial capacity and external risk signalling to modulate expansion.

Core Investment Companies: overseas office oversight changes

The RBI also modified provisions related to core investment companies (CICs). Earlier, the RBI could advise a CIC to wind up its overseas representative office in case of non-compliance. Under the revised directions, this is replaced with a mechanism to review or recall approvals granted for such offices.

While the outcome can still be restrictive for non-compliant entities, the shift suggests the RBI wants oversight to operate through the approvals framework rather than through advisory directions to shut offices. The change stays within the existing regulatory framework but alters the way enforcement may be applied in this specific area.

Draft changes (April 10): simpler upper-layer identification

Separately, a draft framework released on April 10 proposes an asset-size-based classification approach for NBFCs and includes government-owned entities in the upper layer. The draft proposes replacing the current parametric scoring system with a clear asset-size threshold. Under the proposal, NBFCs with assets of ₹100,000 crore or more would be classified as upper layer (NBFC-UL).

The draft also states that government-owned NBFCs, earlier excluded, will now be eligible for inclusion. Upper-layer NBFCs may also get greater flexibility in using state guarantees for risk transfer. The RBI described the aim as making the framework more transparent, ownership-neutral, and easier to implement.

Draft overhaul (February 10, 2026): a new exemption path

The RBI has also released draft amendments dated February 10, 2026, proposing a significant overhaul that introduces a new classification system and a clearer exemption path for low-risk entities. These changes are set to come into force from April 1, 2026. The stated intent is to rationalise compliance for NBFCs that do not access public funds or have a customer interface, and to align regulatory intensity with systemic risk.

The draft replaces the older binary system of “registered” versus “exempt” with a more granular three-tier structure based on funding source, customer interaction, and asset size. A key proposal is the creation of “Unregistered Type I NBFCs” for entities with no public funds, no customer interface, and total assets below ₹1,000 crore. Such entities would be exempt from mandatory RBI registration. Entities meeting the “no public funds and no customer interface” conditions but with assets of ₹1,000 crore or more would fall under “Type I NBFCs” and would still require a Certificate of Registration (CoR).

How definitions are being tightened in the draft

The draft directions broaden the definitions of “public funds” and “customer interface” as regulatory guardrails. “Public funds” is proposed to include a wider range of external financing sources. “Customer interface” is expanded to cover nearly all forms of interaction with external parties, including intra-group lending and providing guarantees.

This approach is meant to ensure that only genuinely low-risk entities qualify for the lighter regime. It also reduces the possibility of regulatory arbitrage where entities structure themselves to appear non-customer-facing while still engaging meaningfully with external stakeholders.

What it could mean for large groups and listings

The April 10 draft flags that the shift may materially change the compliance landscape for large entities like Tata Sons, which is expected to be listed soon. In an asset-size-based approach, classification outcomes can become more rule-like and less dependent on a scoring methodology.

For government-owned NBFCs, proposed eligibility for upper-layer inclusion changes an earlier exclusion in the framework described in the draft. The combined effect of these drafts is that both private and state-backed entities could face a clearer, more standardised test for upper-layer supervision.

Key thresholds and rules at a glance

Market impact: operational and compliance implications

The immediate branch liberalisation can change cost and speed considerations for NBFCs planning physical expansion, particularly for those not under restrictions. For better-rated deposit-taking NBFCs with higher NOF, nationwide expansion permission can support wider distribution without requiring pre-clearance. For weaker deposit-taking entities, the home-state restriction may limit rapid geographic diversification and keep supervisory risk contained.

The draft proposals, if finalised, point to a more rules-based classification regime in 2026. The ₹1,000 crore asset threshold for registration in the proposed Type I framework is a clear dividing line, while the ₹100,000 crore threshold for upper-layer classification is designed to be absolute and transparent. The inclusion of government-owned NBFCs in upper-layer eligibility would also change the supervisory universe compared to earlier exclusions mentioned in the draft context.

Conclusion

RBI’s immediate move to allow branch openings without prior approval gives most NBFCs more operational flexibility, while keeping tighter geographic limits for weaker deposit-taking entities. Alongside this, draft changes dated February 10, 2026 and April 10 propose simpler, asset-based regulatory thresholds, including clearer exemption rules and a defined trigger for upper-layer classification. Next steps depend on final directions and implementation timelines already indicated in the drafts, including the April 1, 2026 start date for the proposed overhaul.