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RBI Proposes Rs 1 Lakh Crore Asset Threshold for NBFC 'Upper Layer'
The Reserve Bank of India (RBI) is making a major change to how it regulates Non-Banking Financial Companies (NBFCs). It proposes designating companies with Rs 1 lakh crore or more in assets as 'upper layer' (NBFC-UL) entities. This is a significant shift from the current Scale-Based Regulatory (SBR) framework, which used a complex system combining asset size with scores based on various factors. The new approach uses a single, clear asset size to simplify classification, boost transparency, and ensure regulation matches the financial scale and systemic importance of these companies.
Government-Owned NBFCs to Join 'Upper Layer'
A key change would bring government-owned NBFCs into the upper layer. The RBI aims for regulations to be consistent, regardless of ownership, meaning similar-sized, important firms face similar rules. Currently, these state-backed firms are usually in lower regulatory tiers. While the asset size is the main factor, scoring based on other metrics will still help identify systemically important NBFCs. The top 50 NBFCs by total exposure will automatically be considered for the upper layer. This asset threshold will be reviewed every five years to keep pace with market changes.
Background: The SBR Framework's Evolution
The RBI introduced the Scale-Based Regulation (SBR) framework in October 2021 to manage the NBFC sector's increasing size and complexity. It divided NBFCs into four tiers: Base Layer (smaller firms), Middle Layer (larger, important ones), Upper Layer (those with significant systemic risk), and a Top Layer (reserved for specific high-risk cases). Moving to a simpler asset-based rule for the upper layer appears to address challenges with the previous scoring method, which was seen as complex and open to interpretation. This change aims for more predictable regulation.
Potential Impacts of the New Threshold
While the Rs 1 lakh crore asset threshold aims for clearer rules, it might create new pressures. NBFCs close to this size may feel compelled to grow quickly or restructure to match the regulatory status of their peers. Companies just above the threshold will need to quickly adopt the stricter rules for upper-layer entities, which often involve capital, governance, and risk management standards similar to banks. The NBFC sector has faced challenges in the past, with failures linked to high risk-taking, leverage, and insufficient liquidity buffers. The IL&FS crisis in 2018 also demonstrated how problems in one NBFC could spread. This regulatory shift could focus intense supervision on fewer, larger firms, changing how smaller companies manage compliance costs. Including government-owned firms also means a more standardized regulatory load, potentially affecting their operational freedom.
Sector Growth and Risk Management
The Indian NBFC sector's total assets were around Rs 45 lakh crore in 2025 and are expected to grow. India's economy is projected to see strong GDP growth in 2026, driven by domestic demand and reforms, despite some global trade challenges. The new rules would let upper-layer NBFCs use state government guarantees to transfer credit risk more freely, potentially boosting lending. This fits with RBI efforts to improve risk transfer tools like securitization and co-lending models, which help manage capital and exposures efficiently.
Public Input and Final Goals
The RBI is seeking feedback on these proposed changes until May 4, 2026, indicating that the final rules might include input from stakeholders. The main aim is to simplify classification rules, improve transparency, and make sure that oversight closely matches the size and importance of large NBFCs, helping to maintain overall financial stability.