Decoding the Latest RBI Guidelines for NBFCs

Non-banking financial companies (NBFCs), the backbone of India's credit-hungry economy are now responsible for roughly 15% of the country's GDP through crucial loan intermediation. However, the Reserve Bank of India has required a highly complex, risk-calibrated regulatory structure to accompany this enormous economic footprint. As they have provided several beneficial services in terms of credit which cannot be provided by the banks to the millions of poor people and MSMEs in India. Because it takes careful planning to navigate the strict regulatory environment and comprehend the NBFC registration procedure, many businesses decide to work with an experienced NBFC license consultant to guarantee full compliance. Setting up a compliant organization requires careful attention to detail, from gathering the many paperwork needed for NBFC registration to matching with structural mandates.

In order to ensure the prudence of the NBFCs in maintaining financial stability and at the same time safeguarding the interest of the depositors, RBI has issued several directives and guidelines in the forms of master directives, circulars and scales framework. Here is a list of the RBI directives which you will need to follow in case you want to establish an NBFC or in case your existing NBFC is growing.

Registration, Eligibility and the Net Owned Fund Requirement

And the very first and most essential requirement for any Non-Banking Financial Company is that the company should have to possess a Certificate of Registration (CoR). The certificate will be obtained under Section 45-IA of the RBI Act, 1934 by the Reserve Bank of India.

To be eligible, the NBFC must be incorporated under the Companies Act, 2013, and must meet the prescribed minimum net owned fund for NBFC threshold. The net owned fund (NOF) is essentially the owned funds of the NBFC — paid-up equity capital, free reserves, and surplus - minus accumulated losses, deferred revenue expenditure, and certain intangible assets. It is a critical indicator of an NBFC's financial health and capacity to absorb risk.

Under the latest RBI rules and regulation framework - including the Reserve Bank of India (Non-Banking Financial Companies – Registration, Exemptions and Framework for Scale Based Regulation) Directions, 2025 - the NOF requirements have been revised significantly:

 

Maintaining the required net owned fund for NBFC is not a one-time requirement - it must be sustained on an ongoing basis. Any shortfall can lead to supervisory action, restrictions on business activities, or even cancellation of the CoR.

A significant development under the November 2025 Amendment Directions is the introduction of "Unregistered Type I NBFCs" — entities with no public funds, no customer interface, and assets below ₹1,000 crore — which are now exempt from mandatory registration under Section 45-IA. This is a calibrated relief measure for investment holding companies and pure proprietary investment vehicles that pose no direct public risk.

Critically, the net owned fund for NBFC is not merely a statutory floor — it is the anchor from which capital adequacy ratios, exposure limits and leverage norms are computed across all layers of the RBI's regulatory framework. Failure to shore up NOF in line with the prescribed glide path is treated as a serious compliance breach with the potential for deregistration.

Scale Based Regulation: A Four-Layer Compliance Architecture with 2025 Quantitative Benchmarks

With respect to the present regulatory system for NBFCs according to RBI, there are several; but some of the important regulatory measures include the SBR framework that has been discussed in the directions issued by RBI in “Non-Banking Financial Companies – Registration, Exemptions and Scale Based Regulation Framework” as on 1st October 2022. In the SBR framework, all NBFCs have been classified into four types depending on their asset size and risk as against the previous classification of systemic and non-systemic NBFCs.

It has been found out from the available data that the Middle Layer NBFCs account for the highest share of the total NBFC assets amounting to 64.6%. The Upper Layer constitutes 30.2% of NBFC assets while the Base Layer constitutes 5.2% of NBFC assets.

Base Layer (NBFC-BL) — Asset Size: Below ₹1,000 Crore

This layer covers non-deposit-taking NBFCs with total assets below ₹1,000 crore, along with niche entities such as NBFC-P2P Lending Platforms, NBFC-Account Aggregators and Non-Operative Financial Holding Companies (NOFHCs). Compliance obligations are relatively lighter, but base layer NBFCs are not exempt from core requirements. Critically, they are being phased into the 90-day NPA recognition norm in a time-bound manner:

• By March 31, 2024 — NPAs to be recognised beyond 150 days overdue
• By March 31, 2025 — NPAs to be recognised beyond 120 days overdue
• By March 31, 2026 — Full convergence at 90 days overdue (aligned with banks)

IPO financing for Base Layer NBFCs is capped at ₹1 crore per borrower, a specific limit introduced to contain retail credit risk in capital market-linked exposures.

Middle Layer (NBFC-ML) - Asset Size: ₹1,000 Crore and Above (All Deposit-Taking NBFCs Irrespective of Size)

The Middle Layer comprises all deposit-taking NBFCs regardless of asset size, and non-deposit-taking NBFCs with assets of ₹1,000 crore and above. It also includes Standalone Primary Dealers, Infrastructure Debt Fund-NBFCs, Core Investment Companies, Housing Finance Companies, and Infrastructure Finance Companies. This is the most densely populated layer, holding 64.6% of total NBFC assets.

Key quantitative requirements for Middle Layer NBFCs under RBI rules and regulation include:

• Minimum CRAR: 15%, with Tier-I capital ≥ 10% of risk-weighted assets
• Standard Asset Provisioning: 0.40% of outstanding standard loans (not netted off against NPAs)
• 90-day NPA recognition norm — already applicable (no phase-in)
• Single borrower exposure limit: 25% of Tier-I capital — Middle Layer NBFCs must link all exposure limits to Tier-I capital, not owned fund
• A Risk Management Committee is mandatory at the board level
• NBFCs with 10 or more branches must implement a Core Banking Solution (CBS) within three years from October 1, 2022

Upper Layer (NBFC-UL) — Proposed Threshold: ₹1 Trillion (₹1 Lakh Crore) and Above

The Upper Layer comprises NBFCs specifically identified by the RBI for enhanced regulation based on systemic importance. Under the existing scoring model, quantitative parameters (size, leverage, interconnectedness) carry 70% weightage and qualitative factors carry 30% weightage. The top 10 eligible NBFCs by asset size are automatically included in this layer.

However, in a landmark April 2026 draft proposal, the RBI has proposed replacing this scoring methodology with a simpler, absolute asset-size criterion of ₹1 trillion (₹1 lakh crore) and above, based on the latest audited balance sheet. Government-owned NBFCs meeting this threshold would also be included, reflecting an ownership-neutral regulatory approach. Once designated NBFC-UL, an entity remains subject to enhanced regulatory requirements for at least 5 years, even if it subsequently falls below the threshold.

Key quantitative requirements for Upper Layer NBFCs under RBI guidelines for NBFCs:

Minimum CRAR: 15%, with Tier-I capital ≥ 10%

• Common Equity Tier 1 (CET1) capital: ≥ 9% of risk-weighted assets (an additional requirement on top of CRAR)
• Large Exposure Framework applicable — similar to banking norms — governing exposures to single counterparties and groups
• Mandatory stock exchange listing within 3 years of NBFC-UL designation (subject to ongoing review)
• External auditor certificate required on completion of any capital augmentation before the additional capital can be reckoned for regulatory purposes (as per the 2026 Concentration Risk Management Amendment Directions effective April 1, 2026)

For risk weights on infrastructure loans, the 2026 Capital Adequacy Amendment Directions (effective January 1, 2026) introduced a repayment-linked framework for High-Quality Infrastructure Projects (HQIP):

• Risk weight of 75% where the borrower has repaid at least 2% of sanctioned project debt
• Risk weight of 50% where the borrower has repaid at least 5% of sanctioned project debt

For group NBFCs belonging to bank groups, the December 2025 Amendment Directions mandate compliance with the Upper Layer NBFC framework — irrespective of their own individual layer classification — subject to restrictions on IPO financing, ESOP funding, land acquisition loans, and loans to directors' relatives.

Top Layer - Ideally Remains Empty

The Top Layer is reserved for NBFCs deemed to pose extreme systemic risk and would be subject to the most intensive supervisory engagement. As a matter of regulatory design, this layer is expected to remain empty — its very existence functions as a deterrent and a signal of escalating regulatory consequence.

Prudential Norms: Capital Adequacy, Asset Classification, and Exposure Limits

Beyond registration and layer classification, the RBI rules and regulation framework mandates a robust set of prudential norms that every NBFC must operationalize rigorously. These norms are designed to ensure solvency, contain systemic risk, and protect the interests of depositors and creditors.

Capital Adequacy in Numbers: As part of RBI guidelines for NBFCs, the minimum Capital to Risk-Weighted Assets Ratio (CRAR) is 15%, with Tier-I capital constituting no less than 10% of aggregate risk-weighted assets for deposit-taking and Middle/Upper Layer NBFCs. Upper Layer NBFCs must additionally maintain CET1 ≥ 9%. The calculation of risk-weighted assets mirrors the Basel III framework used for banks, categorizing assets across credit, market, and operational risk buckets.

NPA and Provisioning Norms: The phased convergence to the 90-day NPA norm for Base Layer NBFCs by March 31, 2026, aligns the sector with banking-grade credit discipline. Middle Layer NBFCs are already required to make standard asset provisions at 0.40% of outstanding standard loans. The 2026 Concentration Risk Management Amendment Directions also aligned the definitions of Owned Fund and Tier-I Capital across both the capital adequacy and concentration norms frameworks, eliminating a previous definitional inconsistency that could produce conflicting compliance outcomes for the same NBFC.

Exposure and Concentration Limits: Middle Layer NBFCs are required to cap single-borrower exposure at 25% of Tier-I capital. Upper Layer NBFCs follow the Large Exposure Framework akin to banks. Lending against shares is subject to a limit of 20% of Tier-I capital as on March 31 of the previous financial year. For IPO financing, the per-borrower cap stands at ₹1 crore.

Public Deposits — Revised Norms (Effective January 1, 2025): For NBFCs accepting public deposits, the revised RBI rules and regulation mandate:

• Small deposits (≤ ₹10,000): Premature withdrawal of full principal amount permissible (without interest) within 3 months of acceptance
• Other deposits: Premature withdrawal capped at 50% of the principal amount or ₹5 lakh, whichever is lower, within 3 months and without interest
• Critical illness: Full principal withdrawal permissible irrespective of deposit tenure
• Minimum liquid asset coverage must be maintained against public deposits at all times

Governance and Reporting Mandates: Systemically important NBFCs — Middle and Upper Layer entities — are required under RBI guidelines for NBFCs to appoint at least one director with relevant banking or NBFC experience, establish board-level Risk Management Committees, and file periodic statutory returns including NBS-1, NBS-2, and SAC. A Chief Compliance Officer (CCO) must be appointed to head an independent compliance function.

KYC, AML Compliance, Fair Practices, and Consumer Protection Directives

The second important foundation in the RBI guidelines and regulations concerning NBFCs is the issue of KYC, AML norms, and code of conduct that ensures protection of the interest of the consumer. The aforementioned duties of the NBFCs arise because of the fear held by RBI regarding the purity of the financial system and the reliability of the customers of the NBFCs governed by RBI.

KYC and AML Norms: All NBFCs irrespective of their size and levels have to compulsorily adhere to the KYC Master Direction by RBI. This comprises the process of due diligence by the customers at the time of on-boarding the client, updating of KYC information regularly, and informing the FIU-India of any suspicious transaction. RBI has not hesitated in levying heavy penalties on the NBFCs for violating these guidelines and in case of P2P lending platform this can cost them millions of rupees.

Digital Cyber Security and Lending: Despite the digital NBFCs expanding at a very fast pace, the regulatory policies of RBI have always focused on IT Governance and Cyber Security. The NBFCs which are operating via their digital lending platforms have to follow the guidelines of RBI under Digital Lending. As per the RBI Digital Lending Guidelines, the borrower will receive a direct transfer of funds in his bank account, complete transparency in relation to all charges and no misuse of customer data whatsoever. In case an NBFC operates through more than 10 branches, then it is obligatory for it to have CBS.

Key Fact Statement (KFS) and Fair Practices Code: According to the RBI guideline for NBFCs, there must always be a Key Fact Statement following every loan agreement, including APR, Repayment Schedule, Penalty, and other Charges.

Recovery Agents and Third-Party Products: The February 2026 Statement on Developmental and Regulatory Policies proposed a harmonised recovery agent framework and stricter norms for NBFCs selling third-party products. These measures are aimed at eliminating coercive recovery practices and ensuring that product distribution by NBFCs prioritises customer suitability over sales incentives.

2025 Unregistered Type I NBFC Relief: As discussed earlier, the November 2025 Amendment Directions introduced a formal exemption pathway for entities with no public funds, no customer interface, and assets below ₹1,000 crore, classifying them as "Unregistered Type I NBFCs." This targeted carve-out recognises that not all financially active entities pose the same consumer risk, and calibrates regulatory burden accordingly. Two additional sub-categories were also introduced to further refine the registration framework based on the public funds and customer interface thresholds.

AIF Investment Restrictions for Group NBFCs:

 As part of the As part of the December 2025 group-level regulation amendments, NBFCs belonging to bank groups are restricted from investing in Category III Alternative Investment Funds (AIFs). For Category I and II AIFs, a bank's contribution to any scheme must not exceed 10% of the scheme's corpus, and the total contribution by all regulated entities to such a scheme must not exceed 20% of the corpus.

Conclusion

The regulatory landscape governing NBFCs in India has undergone a fundamental transformation — evolving from broad-brush proportionality rules to a sophisticated, data-driven, risk-calibrated architecture. From maintaining the prescribed net owned fund for NBFC at ₹2 crore, ₹10 crore, or ₹300 crore depending on category, to navigating the four-layer Scale Based Regulation framework with its precise asset thresholds of ₹1,000 crore and ₹1 trillion, to meeting CRAR of 15%, CET1 of 9%, 90-day NPA norms, and single-borrower exposure caps of 25% of Tier-I capital — the RBI guidelines for NBFCs demand diligence, foresight, and institutional commitment at every level.

For any NBFC operating in today's environment, compliance is not a cost centre — it is a competitive advantage. Entities that internalise RBI rules and regulation into their governance DNA, invest in technology for real-time reporting and risk management, stay current with evolving NBFCs RBI directives such as the 2025 SBR Directions, the 2026 Capital Adequacy Amendments, and the proposed ₹1 trillion upper layer threshold will be the ones best positioned to scale sustainably, attract institutional capital, and serve India's credit-hungry economy responsibly.

Whether you are an established NBFC building out your Upper Layer compliance stack or a new entrant navigating the ₹10 crore NOF threshold, the message from the regulator is unmistakably clear: size up your compliance, shore up your capital, align your definitions, and put your customers first. The RBI's directions are not obstacles — they are the guardrails that make long-term growth possible.