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RBI's New Rule: Asset Size Now Dictates NBFC Oversight
The Reserve Bank of India (RBI) is proposing a major shift in how it regulates non-banking financial companies (NBFCs). Instead of a complex scoring system, the regulator will now use a simple asset size threshold of ₹1 lakh crore to identify 'upper layer' entities. This change aims for clearer, simpler rules and is expected to significantly broaden the scope of strict regulatory oversight. CareEdge Ratings estimates this change could elevate the share of NBFC assets under the 'upper layer' designation from approximately 30% to around 70% of the sector's total assets by September 2025. Crucially, the proposed rules would bring government-owned NBFCs like REC, PFC, and IRFC into the upper layer, ending a long-standing exception and applying rules based on size, not ownership. This is a departure from the previous method, which used a mix of quantitative and qualitative factors, plus automatically included the top ten NBFCs by assets. The new framework aims for a more objective and predictable classification, directly linking regulatory strictness to an entity's size.
Major Companies Face New Rules, Competition Shifts
This rule change is expected to redefine competition within the NBFC sector. Major players like Bajaj Finance (market cap around ₹5.75 lakh crore, P/E of 34x) and Cholamandalam Investment and Finance (market cap near ₹1.32 lakh crore) will likely stay in or be confirmed for the upper layer. Shriram Finance, with a more modest P/E of around 12x and market cap over ₹85,000 crore, has shown recent positive momentum, surging 3.57% on April 15, 2026, outperforming sector peers. Bringing in government NBFCs means they will face enhanced capital, governance, and disclosure rules, potentially affecting their operational flexibility. These firms can still benefit from provisions allowing state government guarantees for credit risk transfer. Analysts have set price targets for Bajaj Finance between ₹9,200-₹10,000 and for Shriram Finance between ₹720-₹800, reflecting market expectations that could change with the regulatory shift. The move aims to focus supervision on systemically important entities regardless of ownership, which could lead to valuation reassessments as companies adjust to new compliance rules.
Key Questions Remain on Balance Sheets and Risks
Despite the goal of simplification, key ambiguities remain. The draft framework doesn't clarify if off-balance-sheet items and securitized assets will count towards the asset threshold, or if standalone or consolidated financials will be used. These details could significantly affect how NBFCs manage their balance sheets, possibly leading them to sell loans or use securitization. Also, while simplifying classification, the rules might unintentionally create loopholes for entities to strategically position themselves just below the thresholds. NBFCs moving to the upper layer will face stricter norms, including a mandatory 9% Common Equity Tier I (CET-I) ratio and listing requirements within three years. Many likely entrants are already well-capitalized and listed, but the added costs for governance, disclosure, and risk management could still pose challenges. The NBFC model still carries risks like asset-liability mismatches and liquidity concerns. Using a simple asset-size metric may not fully capture systemic risks from smaller but highly interconnected firms.
What's Next for NBFCs Under New RBI Framework
The RBI's proposed changes are a significant step toward clearer regulation and stronger oversight for the NBFC sector. The immediate impact will likely involve adjustments to compliance and risk management. The long-term goal is a more resilient, transparent, and stable financial system. Analyst sentiment is cautiously optimistic. Shriram Finance has prevalent 'Buy' ratings, and Cholamandalam Investment and Finance has a generally positive outlook, although Bajaj Finance has seen recent downgrades. Successful implementation depends on how well NBFCs adapt to new governance and disclosure standards, and how the RBI resolves remaining ambiguities in final guidelines. The sector's ability to maintain projected growth rates while navigating this changing regulatory landscape will be key to its continued contribution to India's economic development.