RBI Reimagines NBFC Oversight: Asset Size Benchmarks to Redefine Systemic Upper Layer Status
The Reserve Bank of India (RBI) has signaled a significant overhaul of its regulatory framework governing Non-Banking Financial Companies (NBFCs). The central bank released draft Amendment Directions today, focusing keenly on revising the methodology for identifying the Upper Layer (NBFC-UL).These draft directions aim to streamline regulation by addressing key areas, including the criteria for NBFC-UL designation and the inclusion of government-owned entities. The proposed changes reflect a push toward a more transparent and ownership-neutral regulatory structure.
Proposed Overhaul of NBFC-UL Identification Methodology
The current Scale Based Regulatory (SBR) Framework utilizes a two-pronged approach to identify NBFC-UL status. This involves assessing both the top ten eligible NBFCs by asset size and applying a parametric scoring methodology.The RBI now proposes replacing this existing methodology with a singular, absolute asset size criterion. This simplified benchmark is proposed to be at ₹1,00,000 crore and above. This move is intended to enhance the clarity and simplicity of identifying systemically significant institutions.
Expanding Scope to Government-Owned Entities and Guarantees
A major aspect of the revision is the scope inclusion of government-owned NBFCs. Currently, the SBR Framework generally restricts government-owned NBFCs to the Base or Middle Layer, excluding them from the Upper Layer.In line with fostering an ownership neutral regulatory regime, the RBI proposes considering eligible government-owned NBFCs for inclusion in the NBFC-UL list based on these revised criteria. Furthermore, the draft framework intends to permit all NBFC-UL entities to utilize State Government guarantees as a credit risk transfer instrument without imposing any specific limit, subject to defined conditions.
Timeline for Stakeholder Feedback on Regulatory Directions
The RBI has issued two primary draft directions for review: the ‘Reserve Bank of India (Non-Banking Financial Companies Registration, Exemptions and Framework for Scale Based Regulation) Second Amendment Directions, 2026’ and the ‘Reserve Bank of India (Non-Banking Financial Companies Concentration Risk Management) Third Amendment Directions, 2026’.Feedback and comments are actively being solicited from NBFCs, the general public, and all other relevant stakeholders. The deadline for submitting these inputs is set for May 04, 2026.
Submissions can be made through the dedicated 'Connect 2 Regulate' section on the RBI’s website. Alternatively, detailed feedback can be forwarded to the Chief General Manager - in-Charge, Department of Regulation (SIG-NBFCs), at the RBI Central Office in Mumbai.
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