The Reserve Bank of India (RBI) has created new rules for branch openings by NBFCs. The RBI has established rules for all categories of NBFCs, and the new rules are expected to streamline their operations. Recently, more than 100 NBFCs have closed in India. These new rules are expected to reduce the bureaucracy and expedite the process of new branch openings. Let’s understand the new rules.
Deposit taking NBFCs
If its Net Owned Fund (NOF) of NBFC is up to Rs. 50 crore or has a credit rating below AA then it may open a branch or appoint agents within the State where its registered office is situated and if its NOF is more than Rs. 50 crore and its credit rating is AA or above, then it may open a branch or appoint agents anywhere in India.
For the purpose of opening a branch, a deposit taking NBFC shall notify to RBI of its intention to open the proposed branch. On receipt of such advice, RBI may, on being satisfied that in the public interest or in the interest of the concerned NBFC or for any other relevant reasons to be recorded, reject the proposal and communicate the same to NBFC. If no advice of rejection of the proposal is communicated by RBI within 30 days from the receipt of such advice, the NBFC may proceed with its proposal. Such applications shall be made using the PRAVAAH portal (https://pravaah.rbi.org.in).
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Housing Finance Companies (HFC)
A Housing Finance Company (HFC) shall, before opening a branch or an office in India, inform the National Housing Bank (NHB) in writing, of its intention to open a branch or an office. An HFC shall not open a branch outside India.
Investment and Credit Companies (NBFC-ICC)
A Non-Banking Financial Company – Investment and Credit Company (NBFC- ICC) which is in the business of lending against gold collateral, shall obtain prior approval of RBI to open branches exceeding 1,000. Further, an NBFC-ICC which already has more than 1000 branches shall approach RBI for prior approval for any further branch expansion. Besides, no new branches shall be allowed to be opened without the facilities for storage of gold collateral and minimum-security facilities for the pledged gold collateral. Such applications shall be made using the PRAVAAH portal (https://pravaah.rbi.org.in).
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Opening of Branch abroad
As a general policy, an NBFC shall not be allowed to open a branch abroad. However, the NBFC, which has already set up branch(es) abroad for undertaking financial business and has intimated RBI of the same before, shall be allowed to continue to operate them subject to complying with the Reserve Bank of India (Non-Banking Financial Companies – Undertaking of Financial Services) Directions, 2025, as applicable.
Closure of branches
NBFCs shall give at least three months’ public notice before the date of closure of any of its branches/offices in at least one leading national newspaper and a leading local (covering the place of branch/ office) vernacular newspaper, indicating therein the purpose and arrangements being made to service the depositors, etc. A deposit-taking NBFC shall send intimation along with a copy of the notice in respect of the above within seven days of its publication in the newspapers to the Regional Office of RBI/ NHB under whose jurisdiction the registered office of the company is located.
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Opening of representative offices abroad
NBFCs (including CICs and HFCs) must take prior approval from the RBI before opening a representative office abroad. Applications for this approval must be submitted through the PRAVAAH portal (https://pravaah.rbi.org.in).
Such representative offices can be set up only for liaison work, market study, and research. They are not allowed to carry out any activity that involves spending or lending money. These offices must also follow the rules and regulations of the host country, as prescribed by the local regulator. Since these offices are meant only for liaison work, no line of credit is allowed.
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The parent NBFC must regularly obtain reports on the activities of the representative offices. If no activity is carried out or reports are not submitted, the RBI may direct the NBFC to close the representative office.
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