In a major step towards improving ease of doing business, the Reserve Bank of India has allowed non-banking financial companies (NBFCs) to open branches without seeking prior approval, unless specifically restricted.
The revised framework aims to provide greater operational flexibility to NBFCs while ensuring continued regulatory oversight.
Shift from Earlier Regulatory Approach
Earlier, certain categories of NBFCs were required to obtain prior approval or inform the RBI before expanding their branch network.
With the new guidelines, most NBFCs can now expand freely, marking a significant shift towards a more liberalised regulatory regime.
Differentiated Norms for Deposit-Taking NBFCs
The RBI has adopted a calibrated approach for deposit-taking NBFCs, based on their financial strength and credit rating.
1. NBFCs with NOF ≤ ₹50 crore or rating below AA
- Can open branches only within their home state
2. NBFCs with NOF > ₹50 crore and rating ≥ AA
- Can open branches anywhere in India
3. NBFCs with NOF > ₹50 crore but rating < AA
- Restricted to home state expansion only
This classification ensures that financially stronger NBFCs with better credit profiles enjoy greater operational freedom.
Changes in Rules for Core Investment Companies (CICs)
The RBI has also modified provisions related to Core Investment Companies (CICs).
- Earlier: RBI could direct closure of overseas offices for non-compliance
- Now: RBI will review or withdraw approvals instead
This indicates a more flexible and supervisory approach within the regulatory framework.
Immediate Implementation
The revised norms have come into effect immediately, allowing NBFCs to benefit from increased flexibility in branch expansion.
Conclusion
The RBI’s move is expected to:
- Enhance ease of doing business
- Support NBFC growth and outreach
- Strengthen financial inclusion
At the same time, the differentiated norms ensure that regulatory safeguards remain in place based on financial strength and risk profile.