Non-banking financial companies or NBFCs have increasingly come to occupy a major portion of the process by which credit is supplied in India. They offer their services to a huge number of borrowers who cannot be accessed by banks. With time, due to the growth in the size of NBFCs, the RBI has found itself faced with the issue of dealing with any crisis that may arise from among the large NBFCs. This is why the RBI introduced scale-based regulation a system where the rules an NBFC must follow depend on its size and risk not a single common rulebook for everyone.
Why the Old Rules Weren't Enough?
For a long time, NBFCs were regulated by RBI mainly on one basis: whether they were "systemically important," which was decided mostly by asset size. That worked when the NBFC sector was small. But over time, NBFCs branched into housing loans, microfinance, infrastructure funding and peer-to-peer lending. They also became more connected to banks and capital markets. A few high-profile defaults showed regulators that trouble at one large NBFC could ripple through the entire system.
This is what pushed the RBI toward RBI scale-based regulation, an approach where bigger and riskier NBFCs face tighter rules, while smaller ones get a lighter touch. In simple terms, NBFCs are regulated by size and risk today not by a single common rulebook. This shift falls under the broader set of RBI rules and regulations that govern how NBFCs operate, raise funds and manage risk. Today, these RBI guidelines for NBFCs sit within the consolidated SBR Directions, updated through the 2026 amendments and they form the backbone of how NBFCs' RBI oversight actually works in practice. Anyone trying to make sense of the current RBI rules and regulations for lenders will find that scale, not just size on paper, decides how closely an entity is watched.
The Four Layers, Explained Simply
At the centre of scale-based regulation NBFC Rules is a four-layer pyramid and this scale-based regulation NBFC structure decides how much oversight each entity gets. As an NBFC moves up the pyramid, its obligations increase.
Base Layer (NBFC-BL): This is the largest group. It covers non-deposit-taking NBFCs with assets up to ₹1,000 crore, along with lighter entities like P2P lending platforms and account aggregators that don't hold public money. These face relatively simple rules, along with basic governance and disclosure requirements.
Middle Layer (NBFC-ML): Every deposit-taking NBFC sits here, no matter its size, along with non-deposit-taking NBFCs that cross ₹1,000 crore in assets. Standalone primary dealers, infrastructure debt fund companies, core investment companies, housing finance companies, and infrastructure finance companies also belong here. The rules at this level are close to what used to apply only to the biggest players -covering asset classification, provisioning and prudential norms.
Upper Layer (NBFC-UL): This is where supervision gets serious. Any NBFC, including qualifying government-owned ones, with assets of ₹1 lakh crore or more automatically lands here. Once placed in the Upper Layer, an NBFC gets up to three years to list on a stock exchange and must stay in this layer for at least five years, even if its assets later fall below the mark.
Top Layer (NBFC-TL): This layer is usually kept empty. It exists only for the rare case where the regulator sees an Upper Layer NBFC as posing an unusually high risk to financial stability, in which case it can be moved here for the strictest level of scrutiny.
What Actually Changed for Businesses
The move to scale-based regulation brought real, practical changes:
-
Capital requirements went up. Investment and credit companies, microfinance players and factoring companies must now build their net owned fund for NBFC status up to ₹10 crore. This is being phased in gradually, not all at once, so smaller firms have time to raise capital. Raising the net owned fund for NBFC entities was one of the clearest signals that the RBI guidelines for NBFCs were shifting toward stronger capital buffers.
-
Bad loan rules were made consistent. Most NBFCs used to get 180 days before a loan was tagged as non-performing, while banks used a stricter 90-day rule. Now, most NBFC categories follow the same 90-day standard as banks.
-
Governance rules got stricter. Middle Layer and Upper Layer NBFCs must now have a Risk Management Committee, an independent Chief Compliance Officer and at least one board member with real banking or finance experience. Upper Layer NBFCs also face capital adequacy and leverage limits that didn't exist before.
-
Exposure limits were tightened. Limits on how much an NBFC can lend to one borrower or group are now clearly capped as a percentage of its Tier I capital, so one bad loan is less likely to cause serious damage.
How This Connects to the Credit Policy of RBI
It helps to see these layered rules as part of a bigger picture, not a standalone compliance exercise. Every credit policy of RBI announcement - whether it touches repo rates, liquidity or lending to specific sectors affects how an NBFC borrows money, prices its loans and manages risk. When liquidity tightens across the system, Upper Layer NBFCs with their stronger capital base, are usually in a better position to absorb the shock than lightly regulated Base Layer entities.
The same logic works in reverse. When RBI raises rates, borrowing costs rise for every NBFC but those with stronger capital buffers-built up because of their Upper Layer status tend to pass on the pressure to customers more gradually. This is another reason finance teams inside an NBFC should track each credit policy of RBI update closely, not just for the headline rate move, but for the underlying signals about liquidity and sector-specific lending, since these often affect refinancing costs well before the next classification review.
Recent Changes Worth Knowing
For NBFCs, RBI oversight has kept evolving even after the SBR framework was first rolled out. The RBI has simplified the Upper Layer classification. Instead of a complex scoring model, there's now one clear rule: any NBFC with assets of ₹1 lakh crore or more is automatically placed in the Upper Layer. The regulator has also brought government-owned NBFCs fully into the SBR framework. While fully state-owned entities get some relief on disclosure requirements, their earlier exemptions on lending and investment concentration limits have been removed they must now follow the same exposure rules as private NBFCs.
What This Means for You
If your NBFC is in the Base Layer, the priority is simple: grow your asset base and your governance practices together, since crossing the ₹1,000 crore mark triggers Middle Layer obligations almost immediately. If you're in the Middle Layer and growing, start planning early for capital adequacy, board composition and the risk infrastructure the Upper Layer will eventually require. And if you run multiple NBFCs under common promoters, remember that assets are often combined for classification purposes structuring purely to dodge a threshold rarely holds up.
Under scale-based regulation, waiting for an official notification from the regulator isn't a smart strategy. It's better to build a habit of checking your NBFC's asset trajectory, leverage ratios and inter connectedness at least once a year against the layer thresholds. That gives you enough time to raise capital, strengthen your board or set up the required committees well before a classification change catches you off guard.
Conclusion
However, the regulation framework based on the RBI scale, which has been improved via the 2026 amendments, is based on the following basic principle – regulation must be aligned with the level of risk the entity represents and not be the same for all organizations. Instead of considering such regulation as a one-time compliance issue, NBFCs need to embed capital planning and risk management into their routine operations. No matter whether it is a small-scale or diversified NBFC (housing or infrastructure finance).