Does a Company That Trades Only Its Own Capital Need to Register as an NBFC?

A recurring question for family offices and closely held investment vehicles is deceptively simple: if a private limited company trades equities, debt, derivatives and bullion purely on its own shareholders' capital — taking no public deposits and dealing with no customers — must it register with the Reserve Bank of India as a Non-Banking Financial Company once its paid-up capital crosses Rs 10 crore? The short answer is that capital size is not the trigger. Whether the company is an NBFC at all depends on the 50-50 principal business test, and even a company that meets that test may fall within an exemption from registration. What crossing Rs 10 crore of paid-up capital does trigger is a set of Companies Act obligations that have nothing to do with NBFC status.

The real test: 50-50 principal business, not capital

The RBI classifies a company as an NBFC by reference to what its business principally is, applying the 50-50 principal business test. A company is deemed to carry on financial activity as its principal business — and is thus an NBFC — only where both limbs are satisfied:

(a) the financial assets constitute more than 50% of the total assets of the company, and (b) income from such financial assets constitutes more than 50% of the gross income.

The memo draws this from the Master Direction for Core Investment Companies (Reserve Bank) Directions, 2016, describing it as the foundational test applied across NBFC classification. The decisive consequence is that exceeding Rs 10 crore in paid-up capital does not, by itself, make a company an NBFC. A proprietary trading company that holds mostly financial assets and earns mostly from them will meet the test; but the classification stands or falls on those ratios, not on the size of its capital.

The unregistered exemption for a company with no public funds or customers

Meeting the 50-50 test makes a company an NBFC; it does not automatically require registration. The memo describes a recognised category of Unregistered Type I NBFC — an entity classified as an NBFC but exempt from mandatory RBI registration. On the memo's account, this exemption is operative under RBI "Amendment Directions 2026" (stated to be effective 1 July 2026) and requires four conditions to be met on an ongoing basis:

1. it operates without public funds and without customer interface as a conscious and long-term business model, not a transient one;
2. its asset size is below Rs 1,000 crore per the latest audited balance sheet;
3. its statutory auditor certifies the absence of public funds and customer interface as on date; and
4. it discloses in the notes to its accounts that it is an Unregistered Type I NBFC, together with the status of public funds and customer interface.

The threshold that matters here is assets, not capital. It is only when total assets reach or exceed Rs 1,000 crore that the entity must register as a Type I NBFC; below that, it remains exempt whatever its capital. The memo notes that the Rs 1,000 crore test is applied on a consolidated group basis — so where a group holds several such NBFCs, their aggregate asset size determines whether the threshold is breached and, if it is, all of them must register.

A word of caution is warranted, and the memo itself flags it. The Unregistered Type I NBFC framework and the "Amendment Directions 2026" are drawn largely from professional commentary rather than from the text of an RBI notification reproduced in the memo, and the memo records that these directions are recent and that final RBI clarifications on edge cases — for example whether inter-company lending counts as "customer interface," and how group structures are treated — may still be pending. The propositions in this section should be read with that hedge in mind and verified against the operative RBI text before being relied on.

Rs 10 crore is a registration floor, not a trigger

The Rs 10 crore figure that prompts the question is a Net Owned Fund requirement — a minimum capital an entity must have if it chooses to register in a particular NBFC category, not a level at which registration becomes compulsory. The RBI Master Direction on Scale Based Regulation, 2023 provides:

The Bank hereby specifies Rs 10 crore as the Net Owned Fund (NOF) required for an NBFC-ICC, NBFC-MFI and NBFC-Factor to commence or carry on the business of non-banking financial institution. For NBFC-P2P, NBFC-AA, and NBFC not availing public funds and not having any customer interface, the NOF shall be Rs 2 crore.

Two points follow. First, Rs 10 crore is an entry gate for the NBFC-ICC (Investment and Credit Company) category — an entity seeking that registration must have and maintain at least that much Net Owned Fund; it does not mean every company with Rs 10 crore of capital must register. Second, for NBFCs not availing public funds and without customer interface, the NOF requirement is only Rs 2 crore, which confirms that the Rs 10 crore figure is category-specific rather than a universal threshold.

Scale-Based Regulation applies to registered NBFCs

The RBI's Scale-Based Regulation (SBR) framework, effective October 2023, sorts NBFCs into layers by asset size and activity. The Base Layer comprises non-deposit-taking NBFCs below Rs 1,000 crore in assets, together with certain types — including NBFCs not availing public funds and without customer interface — irrespective of asset size. The Middle Layer captures all deposit-taking NBFCs and non-deposit-taking NBFCs of Rs 1,000 crore and above. The Upper Layer comprises NBFCs specifically identified by the RBI as systemically significant, and the Top Layer is ordinarily empty.

The memo's key structural point is that the SBR framework applies to registered NBFCs. An Unregistered Type I NBFC operating below the Rs 1,000 crore threshold is not sorted into any SBR layer and is not subject to Base, Middle or Upper Layer obligations.

A worked scenario

The memo tests the analysis against a concrete case: a private limited company trading proprietarily in equity, debt, derivatives and bullion on shareholders' capital only, with Rs 15 crore of paid-up capital, Rs 45 crore of total assets, financial assets of Rs 35 crore (77.8% of total assets) and gross income from financial assets of Rs 2 crore (80% of gross income).

On these figures the company is an NBFC, because it clears both limbs of the 50-50 test. But it is exempt from registration as an Unregistered Type I NBFC: it has no public funds, no customer interface, and total assets well below Rs 1,000 crore — and its capital level is irrelevant to that conclusion. It therefore needs no RBI registration and, on the memo's account, has no regular prudential returns to file. What it must do to hold that status is maintain the compliance posture: an annual board resolution confirming it will not avail public funds or have customer interface, a statutory auditor's certificate to the same effect, disclosure of its Unregistered Type I NBFC status in the notes to accounts, and an auditor's exception report to the RBI if any condition is breached.

The parallel track: Companies Act obligations at Rs 10 crore

Crossing Rs 10 crore of paid-up capital does have consequences — but under the Companies Act, 2013, and independent of NBFC status. The memo identifies the following as the significant triggers:

• Whole-time Company Secretary (mandatory). Under Section 203 read with Rule 8A of the Companies (Appointment and Remuneration of Managerial Personnel) Rules, 2014, every private company with paid-up capital of Rs 10 crore or more must appoint a whole-time Company Secretary.
• Annual return certification. Under Section 92 read with Rule 11(2) of the Companies (Management and Administration) Rules, 2014, a company with paid-up capital of Rs 10 crore or more (or turnover of Rs 50 crore or more) must have its annual return in Form MGT-7 certified by a practising company secretary in Form MGT-8.
• Internal audit — not triggered by capital alone. Under Section 138 read with Rule 13(1) of the Companies (Accounts) Rules, 2014, internal audit becomes mandatory for a private company only on turnover of Rs 200 crore or more, or outstanding bank/financial-institution borrowings above Rs 100 crore. A company with Rs 15 crore of capital but turnover and borrowings below those levels is not required to appoint an internal auditor.
• Auditor appointment regime. Under Section 139 read with Rule 5 of the Companies (Audit and Auditors) Rules, 2014, the rotation regime for private companies engages at paid-up capital of Rs 20 crore or more — not Rs 10 crore.

The upshot is a two-track regime. Even where a company is exempt from NBFC registration, it remains a company subject to the Companies Act thresholds keyed to its capital, turnover and borrowings; exemption on one track does not carry over to the other.

SEBI: proprietary trading on own account is largely outside its net

SEBI does not directly regulate a company that trades exclusively for its own account on shareholders' capital and does not act as a broker, dealer or sub-broker, offer products or schemes to clients, or manage third-party funds. Proprietary trading, by itself, does not bring the company within SEBI regulation. SEBI's requirements engage only where the company registers as a trading member or uses exchange infrastructure — where, for instance, proprietary trading terminal registration, location rules, and disclosure and margin requirements for proprietary accounts would apply. A company operating purely as an investor, not as a regulated trading member, does not face those requirements.

Two triggers that can force registration

Two situations flagged in the memo can convert the exempt position into a mandatory one, and both again rest on the recent "Amendment Directions 2026" that the memo treats with the caution noted above.

The first is group-level aggregation. Where a group contains several Unregistered Type I NBFCs, their assets are consolidated; if the aggregate reaches or exceeds Rs 1,000 crore, all of them must register as Type I NBFCs. A single proprietary vehicle with Rs 45 crore of assets may be exempt on its own, yet be pulled into mandatory registration if a sister treasury NBFC in the same group carries assets that take the group over the line.

The second is overseas investment in financial services. On the memo's account, an Unregistered Type I NBFC that intends to make overseas investment in the financial services sector must register as a Type I NBFC, and such entities are in any event prohibited from making overseas investment in the non-financial sector. A proprietary trading company contemplating investment in foreign financial entities or funds should treat this as a registration trigger and confirm the current RBI position before proceeding.

Practical Takeaways

• Run the 50-50 test first. A company is an NBFC only if financial assets exceed 50% of total assets and income from them exceeds 50% of gross income. Capital size is not the test.
• Rs 10 crore is a floor, not a trigger. It is the Net Owned Fund an entity must have to register as an NBFC-ICC — not a level at which registration becomes compulsory. For an NBFC without public funds or customer interface, the relevant NOF is Rs 2 crore.
• The exemption turns on Rs 1,000 crore of assets. An Unregistered Type I NBFC — no public funds, no customer interface, assets below Rs 1,000 crore, held as a conscious long-term model — is exempt from RBI registration whatever its capital, subject to maintaining board-resolution, auditor-certificate and disclosure compliance.
• Companies Act obligations bite at Rs 10 crore capital. A whole-time Company Secretary and practising-CS certification of the annual return become mandatory. Internal audit is driven by turnover (Rs 200 crore) or borrowings (Rs 100 crore), not capital; auditor rotation engages at Rs 20 crore.
• Watch the two conversion triggers. Group assets crossing Rs 1,000 crore on aggregation, and any overseas investment into financial services, can force registration. SEBI enters only if the company becomes a trading member or uses exchange infrastructure.

Because much of the exemption analysis rests on very recent RBI amendments reported through professional commentary rather than reproduced notification text, and because the memo expressly flags open questions — the meaning of "customer interface" for inter-company lending, the definition of "own funds" in edge cases such as shareholder loans, and unstudied SEBI/NBFC overlaps for trading members — any decision to rely on the unregistered exemption should be confirmed against the operative RBI directions and, where the boundaries are unclear, through direct RBI guidance.

Key Authorities

1. Master Direction for Core Investment Companies (Reserve Bank) Directions, 2016 — source of the 50-50 principal business test for NBFC classification.
2. RBI Master Direction — Reserve Bank of India (Non-Banking Financial Company — Scale Based Regulation) Directions, 2023 (19 October 2023) — para 6.1 sets the Rs 10 crore NOF for NBFC-ICC and Rs 2 crore for NBFCs without public funds/customer interface; paras 2.1-2.6 set the Base/Middle/Upper Layer thresholds. Source
3. RBI Amendment Directions 2026 (as reported in professional commentary; effective, per the memo, 1 July 2026) — the Unregistered Type I NBFC exemption, the Rs 1,000 crore asset threshold, group-level aggregation, and the overseas-investment trigger. Memo flags these as recent and subject to clarification; verify against the operative RBI text.
4. Companies Act, 2013 — Section 203 and Rule 8A (whole-time Company Secretary at Rs 10 crore paid-up capital); Section 92 and Rule 11(2) (annual return certification); Section 138 and Rule 13(1) (internal audit on turnover/borrowing thresholds); Section 139 and Rule 5 (auditor rotation at Rs 20 crore).
5. SEBI proprietary trading terminal regulations — engage only where the company is a registered trading member or uses exchange infrastructure, not by reason of trading on own account.

This analysis reflects the law as at July 2026. It is published for general information and does not constitute legal advice.