On March 29, 2025, in the case of Federation of Indian Asset Financiers Associations & Anr. v. Reserve Bank of India & Union of India, the Madras High Court was approached by a federation of NBFCs that do not accept public deposits but have customer-facing operations. These NBFCs challenged the Reserve Bank of India (RBI) Circular dated October 22, 2021 (RBI/2021-22/112), which increased the minimum Net Owned Fund (NOF) requirement from ₹2 crore to ₹5 crore by March 31, 2025, and to ₹10 crore thereafter.

The petitioners contended that their members fall within the “base layer” of RBI’s four-tier NBFC classification—entities with assets under ₹1,000 crore that do not access public funds. They argued that these entities do not pose systemic risk and should not be subject to the same capital thresholds as larger or riskier NBFCs. According to the petitioners, the RBI failed to consider this category distinctly, resulting in an arbitrary classification that violated Article 14 of the Constitution. Despite multiple representations and RTI requests, the RBI had not responded, prompting the petitioners to seek judicial intervention. They relied on Internet and Mobile Association of India v. RBI (2020) to assert that RBI’s policy actions must satisfy the test of proportionality.

Submissions by RBI and the Union of India

RBI, through senior counsel, opposed the petition. It noted that the impugned circular was issued in October 2021 and became effective from October 2022, providing sufficient time for compliance. The delay in approaching the Court, it argued, was inexcusable. Further, RBI contended that its policy decisions are based on expert financial analysis and that courts should not interfere with such decisions. The Union of India supported RBI’s position, adding that the petition filed through an association was not maintainable and that the circular was issued as part of subordinate legislation after consultations with stakeholders.

Interim Relief granted by the High Court

The High Court refrained from ruling on the circular’s legality or the maintainability objection but acknowledged the petitioners’ concerns about business continuity. It took note of the imminent March 31, 2025 deadline and the potential impact on smaller NBFCs. Given this urgency, the Court directed the Chief General Manager of the RBI to grant a personal hearing to the petitioners’ representatives—preferably two to four members—and consider their earlier and subsequent representations. A reasoned order was to be passed by April 30, 2025. The Court clarified that it had not expressed any opinion on the merits of the case and that both parties retained the right to pursue further remedies if necessary. The petition was disposed of without costs.

AK and Partners’ Comments

The Madras High Court’s approach reaffirms the judiciary’s consistent deference to financial regulators like the RBI in matters of policy. By directing the RBI to “consider on merits” rather than issuing a mandatory order, the Court preserved the regulator’s autonomy while ensuring procedural fairness.[1] For NBFCs and similar entities, this implies that judicial relief in regulatory matters is usually limited to securing a fair hearing rather than securing a specific outcome. Petitioners must therefore focus on making well-reasoned, data-backed representations that address regulatory concerns. The Court’s order does not amount to an extension of time or invalidation of the circular, but it leaves open the possibility that RBI may, in appropriate cases, grant limited relief including time extensions.

Historical Context: NOF Revisions by RBI

The RBI has periodically revised NOF norms for NBFCs to enhance the sector’s stability. Prior to 2021, the minimum NOF stood at ₹2 crore. In October 2021, the RBI introduced a scale-based regulatory framework that revised the minimum NOF to ₹10 crore in a phased manner:

  • By March 31, 2025: NBFCs must reach ₹5 crore NOF.
  • By March 31, 2027: The threshold rises to ₹10 crore.

This phased compliance structure acted as a built-in extension, especially for smaller NBFCs. It provided adequate time to augment capital resources and adapt to the evolving regulatory environment. The RBI has made it clear that non-compliance with these timelines could result in cancellation of the Certificate of Registration (CoR).

While these glide paths are in themselves lenient timelines, there is limited public record of RBI granting further extensions beyond these phases. That said, the regulator may, on a case-by-case basis and upon specific representation, consider extending compliance deadlines. NBFCs facing genuine difficulties are therefore advised to engage with RBI early and seek expert legal and regulatory guidance to navigate these challenges effectively.


[1] Refer Tata Cellular v. Union of India, (1994) 6 SCC 651 and specific to RBI please refer Peerless General Finance and Investment Co. Ltd. v. RBI, (1992) 2 SCC 343