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RBI says new NBFC classification at the end of month

April 08, 2026 5 min read Economics Polity & Governance GS3 (Indian Economy Banking Financial Regulation)
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What Happened

  • The Reserve Bank of India announced it will unveil a new framework for categorising Non-Banking Finance Companies (NBFCs) into Upper, Middle, and Base layers by the end of April 2026
  • The initiative aims to refine regulatory oversight as the NBFC sector has grown significantly in size, complexity, and systemic importance
  • Existing regulations already differentiate treatment of NBFCs based on scale and risk, under the Scale-Based Regulation (SBR) framework introduced in October 2021
  • The new classification update is expected to reflect the sector's evolution and address emerging regulatory gaps as NBFCs have increasingly moved into credit segments previously dominated by banks

Static Topic Bridges

RBI's Scale-Based Regulation (SBR) for NBFCs — The Four-Layer Framework

The RBI introduced the Scale-Based Regulation (SBR) for NBFCs via a circular on October 22, 2021, effective October 1, 2022. SBR replaced the earlier activity-based regulatory approach with a layered framework that calibrates regulatory requirements based on the size, activity, and perceived systemic riskiness of each NBFC.

  • SBR circular issued: October 22, 2021; Master Direction on SBR subsequently issued
  • Four Layers:
  • Base Layer (NBFC-BL): Non-deposit-taking NBFCs with asset size below Rs 1,000 crore; also includes NBFC-P2P platforms, NBFC-Account Aggregators, and entities with no public funds/customer interface — lightest regulatory requirements
  • Middle Layer (NBFC-ML): All deposit-taking NBFCs (regardless of size); non-deposit-taking NBFCs with assets Rs 1,000 crore and above; Core Investment Companies (CICs); Infrastructure Finance Companies (NBFC-IFC); Housing Finance Companies (HFCs) — stricter prudential norms apply
  • Upper Layer (NBFC-UL): Top NBFCs identified through a scoring methodology based on size, interconnectedness, complexity, and supervisory inputs; top 10 eligible NBFCs by asset size are mandatorily placed here; subject to near-bank-like regulation including Common Equity Tier 1 (CET1) of minimum 9% of Risk Weighted Assets
  • Top Layer (NBFC-TL): Ideally remains empty; activated only if RBI perceives a specific NBFC as posing substantial systemic risk warranting the highest regulatory intensity
  • Upper Layer NBFCs must get listed on stock exchanges within 3 years of classification in that layer

Connection to this news: The upcoming April 2026 classification update refines this four-layer architecture — likely reassigning NBFCs that have grown or contracted, and potentially updating the scoring methodology to reflect sectoral developments since 2021.

NBFCs — Structure, Role, and Regulatory History in India

Non-Banking Finance Companies are financial intermediaries regulated by the RBI under the RBI Act, 1934 and the Non-Banking Financial Companies (Deposit Accepting) Directions and Non-Banking Financial Companies (Non-Deposit Accepting) Directions. They perform bank-like functions (lending, investment) but cannot accept demand deposits or issue cheques.

  • Regulatory authority: Reserve Bank of India under Chapter III-B of RBI Act, 1934
  • Key distinction from banks: NBFCs cannot accept demand deposits; not part of the payment and settlement system (no RTGS/NEFT access); do not have a deposit insurance cover under DICGC
  • NBFC types (by activity): NBFC-ICC (Investment and Credit Company — most common), NBFC-MFI (Microfinance Institution), NBFC-HFC (Housing Finance Company), NBFC-IFC (Infrastructure Finance Company), NBFC-CIC (Core Investment Company), NBFC-P2P, NBFC-AA (Account Aggregator)
  • NBFC sector size: Total assets of the NBFC sector crossed Rs 60 lakh crore by 2024-25; credit to NBFCs from banks represents a major interconnectedness risk
  • Shadow banking risk: Large NBFCs can transmit risk to the banking system through wholesale borrowing — the 2018 IL&FS crisis demonstrated this systemic risk
  • IL&FS Crisis (2018): Infrastructure Leasing and Financial Services defaulted on Rs 91,000+ crore debt, triggering an NBFC liquidity crisis; prompted major NBFC regulatory overhaul leading to the SBR framework

Connection to this news: The April 2026 NBFC classification update is a direct output of the regulatory architecture built post-IL&FS. As the NBFC sector has grown and individual entities have changed in scale, the annual/periodic classification review ensures regulatory oversight remains proportionate to actual systemic importance.

Systemic Risk and Macro-Prudential Regulation

Macro-prudential regulation addresses systemic risk — the risk that the failure of one institution or a sector-wide stress event can cascade through the financial system, threatening economic stability. The RBI's SBR for NBFCs is explicitly a macro-prudential tool.

  • Systemic Risk: Risk to the stability of the entire financial system (as opposed to idiosyncratic risk affecting a single institution)
  • Basel III framework (global standard): Identifies Systemically Important Banks (G-SIBs and D-SIBs) and imposes additional capital surcharges; India's SBR for NBFCs follows analogous logic
  • India's D-SIBs (Domestic Systemically Important Banks): SBI, HDFC Bank, ICICI Bank — must hold additional Common Equity Tier 1 (CET1) buffer of 0.2%–0.8% above standard requirements
  • By analogy, NBFC-UL entities face D-SIB-equivalent requirements including CET1 of 9%, mandatory listing, and enhanced RBI oversight
  • Financial Stability Report (FSR): RBI publishes this biannually to assess systemic risks in the financial sector, including NBFC sector health
  • Inter-Regulatory Coordination: NBFCs overlap with markets (SEBI), insurance (IRDAI), and pension (PFRDA) — Financial Stability and Development Council (FSDC) coordinates regulation across these bodies

Connection to this news: The new NBFC classification framework is a macro-prudential exercise — ensuring that systemically important NBFCs are identified and subject to appropriate oversight, while smaller entities are not burdened with disproportionate compliance costs.

Key Facts & Data

  • SBR framework issued: October 22, 2021; effective October 1, 2022
  • Four layers: Base Layer (NBFC-BL), Middle Layer (NBFC-ML), Upper Layer (NBFC-UL), Top Layer (NBFC-TL)
  • Base Layer threshold: Non-deposit-taking NBFCs with assets below Rs 1,000 crore
  • Middle Layer: All deposit-taking NBFCs + non-deposit-taking with assets Rs 1,000 crore+
  • Upper Layer: Top 10 NBFCs by assets (mandatorily); others by scoring methodology
  • Upper Layer capital requirement: CET1 minimum 9% of Risk Weighted Assets
  • Upper Layer NBFCs: Must be listed on stock exchanges within 3 years of classification
  • Top Layer: Ideally empty; activated for exceptional systemic risk cases
  • NBFC sector total assets: Crossed Rs 60 lakh crore by 2024-25
  • IL&FS default (2018): Rs 91,000+ crore; triggered NBFC regulatory overhaul
  • New classification update timeline: End of April 2026
  • Regulatory authority: Reserve Bank of India under Chapter III-B of RBI Act, 1934