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RBI Reviews Scale-Based Regulation Framework for NBFCs

December 31, 2025

RBI Initiates Review of NBFC Regulatory Framework

The Reserve Bank of India (RBI) has begun a comprehensive review of the Scale-Based Regulation (SBR) framework governing Non-Banking Financial Companies (NBFCs) . Introduced in 2022, the framework was designed to align regulatory intensity with the size, complexity and systemic importance of NBFCs. The review reflects concerns over rising financial risks amid the sector’s rapid expansion.

Why the Review Was Considered Necessary

NBFCs have grown into a critical pillar of India’s credit system, with their lending now equivalent to nearly 15 per cent of GDP . Increased interconnectedness between NBFCs and banks has heightened the risk of contagion, where stress in a large NBFC could quickly transmit to the broader financial system. The RBI has also flagged rising unsecured lending , higher leverage, and growing balance-sheet complexity as emerging vulnerabilities.

Understanding Scale-Based Regulation

The SBR framework follows a risk-oriented and proportional approach , ensuring that larger and riskier NBFCs face stricter supervision than smaller entities. Regulatory requirements intensify as the potential systemic impact increases, allowing flexibility without compromising financial stability.

Four Regulatory Layers Explained

Under SBR, NBFCs are classified into four layers.

  • Base Layer (NBFC-BL) includes non-deposit taking NBFCs with assets below ₹1,000 crore, along with entities such as P2P platforms and Account Aggregators.

  • Middle Layer (NBFC-ML) comprises all deposit-taking NBFCs and non-deposit taking NBFCs with assets of ₹1,000 crore or more, accounting for the largest share of total NBFC assets .

  • Upper Layer (NBFC-UL) consists of RBI-identified NBFCs based on size, leverage and interconnectedness.

  • Top Layer is reserved for entities posing extreme systemic risk and is expected to remain empty as a deterrent.

Policy Significance

The review aims to keep regulation adaptive and forward-looking while safeguarding financial stability, ensuring that NBFC growth remains sustainable and well-supervised.

Important Facts for Exams

  • Scale-Based Regulation for NBFCs was introduced in 2022

  • NBFC credit accounts for nearly 15% of India’s GDP

  • Middle Layer holds the largest share of NBFC assets

  • RBI is the regulator of NBFCs

  • Rising unsecured lending is a key concern

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