Reserve Bank of India permits NBFCs to distribute regulated financial products
NBFC distribution teams must run third‑party product sales only on fee‑only, no‑risk‑participation arrangements with requisite sector‑regulator permissions and Responsible Business Conduct compliance from 01 January 2027
Change
On 15 June 2026, the Reserve Bank of India amended the NBFC Undertaking of Financial Services Directions to permit NBFCs and HFCs to undertake distribution of regulated financial products (insurance, mutual funds and PFRDA/NPS PoP services) without RBI approval, subject to sectoral regulator permissions, compliance with the Reserve Bank of India (Non‑Banking Financial Companies - Responsible Business Conduct) Directions, fee‑only/no‑risk participation arrangements, upfront disclosure and grievance‑redressal requirements; effective 01 January 2027.
Why it matters
NBFCs and HFCs can no longer rely on RBI approval as a precondition to distribute insurance, mutual funds or NPS PoP services; they must obtain IRDAI/SEBI/PFRDA permissions and comply with the Responsible Business Conduct Directions before starting these activities. Distribution arrangements must be fee‑based with no risk participation, disclosed upfront to customers, and limited to products covered by the arrangement; underlying product providers must have robust grievance‑redressal mechanisms, and failure to meet these conditions constitutes breach of the Directions.
Implications
- — NBFC distribution teams must obtain and hold requisite permissions from IRDAI, SEBI or PFRDA before commencing respective insurance, mutual fund or NPS distribution — operating without these permissions constitutes non‑compliance with RBI Directions.
- — NBFC product and digital‑channel teams must structure third‑party arrangements as fee‑only with no risk participation, disclose the fee‑only model upfront, list only products covered under the arrangement and verify product providers' grievance‑redressal mechanisms — failure risks breach of the Directions.
- — HFC product and compliance teams must confirm they meet the prescribed Net Owned Fund threshold and obtain IRDAI permission before undertaking insurance distribution under the exempted route — undertaking the business without meeting these conditions removes the RBI exemption.
- — NBFC PoP product teams must register with PFRDA and confirm compliance with the prescribed CRAR and a net profit in the preceding financial year before offering PoP services for NPS on a fee‑only basis — offering PoP prior to satisfying these conditions breaches the Directions.
Who is affected
- — NBFC distribution teams
- — NBFC product and digital‑channel teams
- — HFC product and compliance teams
- — NBFC PoP product teams
What to watch
- — Effective: 01 January 2027 — the amended Directions apply from this date.