Microfinance & NBFC Advisory

Overview

The NBFC sector in India has become one of the most significant and closely regulated segments of the financial system. The Reserve Bank of India's progressive tightening of the regulatory framework — bringing NBFC regulation progressively closer to bank regulation in terms of capital requirements, governance standards, and supervisory intensity — has created a compliance environment of considerable complexity for NBFC promoters, investors, and management teams. NBFC registration under Section 45-IA of the RBI Act requires compliance with minimum net owned fund requirements (currently INR 10 crore for most NBFC categories), a satisfactory credit record, and a business plan that satisfies RBI's assessment criteria. The RBI's Master Direction on Registration and Operations of NBFCs, and the category-specific directions for NBFC-Investment and Credit Companies, NBFC-Micro Finance Institutions, NBFC-Factors, NBFC-Account Aggregators, and NBFC-Infrastructure Finance Companies, each define distinct regulatory obligations that the entity must satisfy as a condition of registration and on an ongoing basis. For microfinance institutions, the RBI's Regulatory Framework for Microfinance Loans issued in March 2022 represented a significant rationalisation — removing the earlier distinction between NBFC-MFI regulations and other lenders in the microfinance space, and introducing a unified framework based on borrower household income and indebtedness limits, pricing freedom within caps, and prescribed repayment flexibility norms. MFIs operating under the new framework must ensure that their loan origination processes, credit bureau queries, and recovery practices comply with the revised requirements. Scale-based regulation, introduced by the RBI in October 2021, has stratified the NBFC sector into Base Layer, Middle Layer, Upper Layer, and Top Layer categories based on asset size and systemic importance — with each layer attracting distinct regulatory requirements for capital adequacy, leverage, governance, and supervision. Upper Layer NBFCs are now subject to enhanced regulatory requirements significantly closer to bank regulation, including mandatory listing requirements that have significant implications for their promoters and investors. Ownership and control changes in NBFCs require prior RBI approval — a requirement that affects M&A transactions involving NBFC entities and must be factored into acquisition structuring and timeline planning.

Key Service Components

• ◆NBFC registration application — RBI Section 45-IA filing and approval management
• ◆Category selection advisory — NBFC-ICC, NBFC-MFI, NBFC-Factor, NBFC-AA and other categories
• ◆MFI regulatory compliance under RBI Regulatory Framework for Microfinance Loans 2022
• ◆Scale-based regulation compliance — Middle Layer and Upper Layer NBFC requirements
• ◆RBI Master Direction compliance for capital adequacy, leverage and governance
• ◆NBFC ownership and control change — prior RBI approval process management
• ◆Corporate governance framework — board composition, risk management and audit committee
• ◆NBFC M&A advisory — acquisition structuring with RBI approval compliance
• ◆NBFC cancellation of registration advisory and orderly wind-down
• ◆RBI inspection preparation and regulatory correspondence management

Our Approach

Corpus Juris Legal advises NBFC and MFI clients from initial registration through the full lifecycle of RBI regulatory engagement — including the critical inflection points of scale-based reclassification, change of control transactions, and regulatory inspections. Our banking regulatory practice combines statutory expertise with practical familiarity with the RBI's supervisory approach, giving our clients advice that anticipates the regulator's concerns rather than merely reacting to them.

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