RBI Cancels 35 NBFC Registrations: What Non-Compliance Means for India's NBFC Sector

The Reserve Bank of India has cancelled the Certificates of Registration of 35 Non-Banking Financial Companies for non-compliance with regulatory requirements, effective from January 2026. The affected entities are no longer permitted to carry on the business of a non-banking financial institution. This enforcement action is part of the RBI's ongoing effort to rationalise the NBFC sector, remove non-functional or non-compliant entities from the register, and ensure that only entities with genuine business activity and adequate compliance infrastructure retain registration. For the broader NBFC sector, the action underscores the seriousness with which the RBI is now approaching supervisory enforcement.

What Triggers NBFC Registration Cancellation

Under Section 45-IA of the Reserve Bank of India Act, 1934, the RBI has the power to cancel the Certificate of Registration of an NBFC on several grounds: if the entity ceases to carry on NBFC business, if it fails to comply with RBI directions or conditions attached to its registration, if it fails to maintain the minimum Net Owned Fund requirements, if it fails to submit statutory returns and financial statements, or if it is carrying on activities that are prejudicial to public interest. In the January 2026 action, the cancellations appear to have been triggered primarily by prolonged non-submission of regulatory returns and failure to maintain minimum NOF thresholds.

Regulatory Obligations That NBFCs Must Maintain

Registered NBFCs are required to file audited balance sheets and profit and loss accounts with the RBI annually, submit quarterly returns on asset quality, borrowings, and capital adequacy, maintain a minimum Net Owned Fund of Rs 10 crore (for new registrations) or the applicable legacy threshold for existing entities, comply with Fair Practices Code requirements for lending NBFCs, adhere to credit concentration norms and know-your-customer requirements, and ensure that their principal business activity remains financial in nature. Deposit-taking NBFCs face additional obligations including maintenance of liquid assets and compliance with deposit acceptance ceilings.

Consequences of Registration Cancellation

An NBFC whose registration is cancelled cannot accept deposits, make loans, or conduct any financial business that requires NBFC registration. Existing loan portfolios must be wound down and existing depositors must be repaid. The entity can challenge the cancellation order before the Company Law Board within 30 days of receiving the order. Carrying on NBFC business after cancellation of registration is a criminal offence under the RBI Act. For promoters and directors of cancelled entities, the RBI's enforcement record can affect their fitness and propriety assessments in future applications for financial sector licences.

What Creditors and Customers of Cancelled NBFCs Should Know

Borrowers from a cancelled NBFC remain legally obligated to repay their loans. The loan agreements remain enforceable and the portfolio may be sold to another regulated entity or wound down by a court-appointed administrator. Depositors with deposit-taking NBFCs that have had their registration cancelled should contact the entity immediately and, if deposits are not repaid, file a complaint with the RBI's Ombudsman for NBFCs. The RBI typically requires cancelled entities to publish a public notice of cancellation. Any NBFC that receives a show-cause notice from the RBI regarding potential cancellation should engage legal counsel immediately and respond substantively within the prescribed timeline.