Big assets, bigger responsibilities: RBI's message to India’s largest non-banks
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On 24 June 2026, the Reserve Bank of India (RBI) revamped the regulatory framework for non-banking financial companies (NBFCs). The overhaul makes it simpler to determine which NBFCs fall into the ‘upper layer’ and also strengthens the rules applicable to government-owned NBFCs.
The key change is a clear, objective criterion for classifying upper layer NBFCs. Previously, the RBI relied on a score-based methodology that involved regulatory judgment and some subjectivity. Under the revised rules, any NBFC with total assets of at least ₹1 trillion, based on its latest audited annual balance sheet, will be treated as an upper layer NBFC. This moves the regime away from a discretionary approach to a transparent, threshold-driven system.
Many market participants had urged the RBI to raise this cut-off to ₹2.5 trillion. The central bank chose to keep the limit at ₹1 trillion, explaining that it reflects the current structure of the NBFC sector and the financial characteristics of NBFCs already in the upper layer. It also stated that this threshold will now be reviewed every three years instead of every five. This shorter review cycle allows the RBI to adjust the framework more frequently in line with changes in NBFC growth, business volumes and sectoral trends.
Another significant change is that government-owned NBFCs can now be placed in the upper layer. Earlier, such entities were confined to the base or middle layers. With this revision, the regulatory treatment of privately held and government-owned NBFCs has been aligned, in line with the RBI’s broader push towards ownership-neutral regulation. However, there is a narrow carve-out for upper layer NBFCs that are wholly owned and controlled by the government: they are exempt from mandatory listing and some disclosure requirements that otherwise apply to upper layer entities.
The RBI has also tightened the exposure norms for government-owned NBFCs. These institutions must now adhere to the exposure ceilings applicable to the regulatory layer they fall under. Existing exposures that exceed these limits can run until the sanctioned loans mature, but fresh lending to such borrowers will be constrained. At the same time, government-owned NBFCs in the middle or upper layer may exceed the usual exposure caps if the excess is fully backed by eligible credit-risk-transfer instruments, so that there is effectively no net additional exposure on their books.
The changes are particularly beneficial for NBFC–IFCs (infrastructure finance companies). To better support India’s infrastructure funding requirements, the group exposure limit for upper layer NBFC–IFCs has been raised to 45%. This higher cap is expected to create more room for lending to infrastructure groups and help sustain ongoing projects.
Taken together, these measures convey a firm regulatory stance. Large NBFCs will need to keep a closer watch on their asset size, while government-owned NBFCs must gear up for stricter oversight. The RBI has also signalled that as NBFCs expand in scale and systemic importance, its supervision and regulatory intensity over the sector will increase accordingly.
In summary, size will increasingly draw tighter regulation, and big NBFCs—irrespective of whether they are privately owned or government-owned—will be required to adhere to more demanding standards of governance, transparency, capital management and concentration risk control.
The views expressed are those of Nand Gopal Anand and Harshit Dusad, partners at JSA Advocates & Solicitors.
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