RBI Seeks Public Comments on Draft Directions to Revise NBFC-UL Identification Methodology
Why it matters
The Reserve Bank of India has initiated a review of its Scale Based Regulatory (SBR) Framework for Non-Banking Financial Companies (NBFCs) by releasing two draft Amendment Directions: the ‘Reserve Bank of India (Non-Banking Financial Companies – Registration, Exemptions and Framework for Scale Based Regulation) Second Amendment Directions, 2026’ and the ‘Reserve Bank of India (Non-Banking Financial Companies - Concentration Risk Management) Third Amendment Directions, 2026’. This move builds upon the existing SBR framework which currently employs a two-pronged methodology, combining asset size (top ten eligible NBFCs) and a parametric scoring model, for identifying NBFCs in the Upper Layer (NBFC-UL).
The current consultation is pivotal for the financial sector as it proposes to simplify the identification criteria for NBFC-ULs to a transparent, absolute asset size of ₹1,00,000 crore and above. Furthermore, in a significant policy shift towards ownership-neutral regulation, eligible Government-owned NBFCs, previously categorized in the Base or Middle Layer, are now proposed for inclusion in the Upper Layer. This change aims to ensure a level playing field and consistent regulatory application across the NBFC sector. Stakeholders are invited to submit their feedback by May 04, 2026, which will directly inform the finalization of these crucial regulatory amendments, impacting the oversight and operational scope of large NBFCs.
Key Takeaways & Related Events
- Draft Directions Issued: 'NBFC Scale Based Regulation Second Amendment Directions, 2026' and 'NBFC Concentration Risk Management Third Amendment Directions, 2026'.
- Public Comment Period: Feedback invited until May 04, 2026.
- New NBFC-UL Criterion: Proposed asset size of ₹1,00,000 crore and above, replacing the previous two-pronged methodology.
- Inclusion of Government NBFCs: Eligible Government-owned NBFCs now considered for Upper Layer.
- Credit Risk Transfer: NBFC-ULs may use State Government guarantees without limit, subject to conditions.
Glossary
Non-Banking Financial Company (NBFC): A financial institution that does not have a banking license but engages in lending and other financial services, subject to RBI regulation.
NBFC-Upper Layer (NBFC-UL): The top tier of NBFCs under RBI's Scale Based Regulation, subject to enhanced regulatory requirements due to their systemic significance.
Scale Based Regulatory (SBR) Framework: A regulatory structure implemented by the RBI to categorize NBFCs into different layers based on their size, activity, and perceived risk, applying proportionate regulations.