RBI sets ₹1 lakh crore NBFC-UL bar from June 24

What RBI changed in NBFC Upper Layer rules

The Reserve Bank of India (RBI) has updated how it identifies non-banking financial companies (NBFCs) that fall under the Upper Layer (NBFC-UL). Under the revised directions announced on June 24, an NBFC with an asset size of ₹1,00,000 crore (₹1 lakh crore) or more can be considered for inclusion in the Upper Layer category. RBI said this change will result in higher regulatory obligations for NBFCs that meet the threshold.

The move replaces a more complex approach that relied on a parametric scoring methodology. The earlier framework used factors such as size, interconnectedness, and complexity, and also included elements like top-ten asset ranking and scoring. The central bank has now shifted to a simpler asset-size based approach.

The new threshold: ₹1,00,000 crore and above

Under the updated criteria, the asset-size benchmark for NBFC-UL classification is set at ₹1,00,000 crore and above. RBI indicated this asset size criterion is aligned with what it had previously proposed in draft guidelines.

Importantly, RBI has linked the measurement to audited financials. The asset size for identifying NBFC-UL will be determined based on the company’s audited balance sheet on a standalone basis. RBI said this design is meant to improve simplicity, transparency, and predictability, and to enable a smoother transition for NBFCs into NBFC-UL regulations.

Standalone audited balance sheet will decide classification

RBI’s direction to use the latest audited balance sheet on a standalone basis matters for groups that may otherwise rely on consolidated numbers. The regulator’s stated intent is to keep classification objective and easy to verify.

The shift also reduces scope for interpretation compared with the earlier scoring-based model. RBI’s stated objective is to move toward an absolute and measurable criterion for identifying NBFCs that may be considered for the Upper Layer.

Review cycle shortened to three years

Given the sector’s growth trajectory, RBI said it has shortened the frequency for reviewing the asset-size threshold. The review will now be done every three years, instead of five years, as was proposed in the draft framework.

This shorter review period indicates RBI expects balance sheets in the sector to expand meaningfully and wants the threshold to remain relevant to the scale-based regulation structure.

Government-owned NBFCs included, but listing not required

RBI said government-owned NBFCs that meet the eligibility criteria will also be considered for inclusion in the Upper Layer. The update reflects an ownership-neutral approach to regulation.

At the same time, RBI clarified that government-owned NBFCs will not be required to list on stock exchanges even if they enter the Upper Layer category. This is relevant for large state-owned lenders and infrastructure-focused NBFCs that could now come under tighter oversight.

Norms effective immediately from June 24

RBI said these revised norms come into effect from June 24 itself. That makes the changes operational from the date of announcement, rather than being deferred to a later implementation window.

The immediate effectiveness also means eligible entities and market participants must align to the updated classification approach without waiting for a separate activation date.

A separate amendment: narrow exemption for certain investment companies

In addition to the Upper Layer changes, RBI’s broader NBFC framework also includes an amendment that creates a narrow exemption for certain investment companies. The exemption applies only if three conditions are met: the entity does not avail public funds, does not have a customer interface, and has asset size below ₹1,000 crore.

RBI said the exemption is not a blanket relief and is structured as a conditional carve-out. The final directions for this amendment come into force from July 1, 2026.

Existing eligible NBFCs, including those holding a Certificate of Registration as Type I NBFCs, may apply for deregistration by December 31, 2026. RBI noted that eligible existing NBFCs may apply for deregistration through PRAVAAH.

How RBI defines an NBFC in this framework

RBI reiterated the standard “50-50” test for identifying an NBFC. A company is regarded as an NBFC if financial assets are more than 50% of total assets (excluding intangible assets), and income from financial assets is more than 50% of gross income.

For the exemption linked to the ₹1,000 crore threshold, RBI requires the company to operate without public funds and customer interface as a conscious, long-term business model. It must also pass an annual board resolution at the beginning of the financial year confirming it will not avail public funds and will not have customer interface during the year.

Group aggregation and overseas investment clarifications

RBI also highlighted group aggregation considerations. Its FAQ notes that for aggregation purposes, the asset size of Type I NBFCs will be considered, while the asset size of Unregistered Type I NBFCs will not be considered for determining Middle Layer classification. However, where a group has multiple Unregistered Type I NBFCs, their asset sizes must be aggregated, and if the total is ₹1,000 crore or above, all such entities must register as Type I NBFCs.

On overseas investment, RBI clarified that an Unregistered Type I NBFC that wants to invest overseas in the financial services sector must first obtain RBI registration, after which it will be regulated as a Type I NBFC. It must also comply with applicable overseas investment directions, including prior RBI approval where required. RBI further stated that an Unregistered Type I NBFC cannot undertake overseas investment in the non-financial sector.

Market impact: which NBFCs could move in or out

Market participants have pointed out that government-linked NBFCs with asset sizes above ₹1 lakh crore such as Power Finance Corp (PFC), REC, Indian Railway Finance Corp (IRFC), and Housing & Urban Development Corp (HUDCO) could potentially fall into the Upper Layer list under the revised approach.

At the same time, smaller players that are currently part of the Upper Layer list but have assets below ₹1 lakh crore could potentially move out under a strict asset-size filter. The reporting cited examples such as PNB Housing and Samunnati Capital as names that are currently part of the 15 Upper Layer entities while having assets below ₹1 lakh crore.

Separate commentary also referenced Tata Sons, noting it is not affected either way by the new UL-NBFC draft revisions, while another note said there is no explicit relief and the outcome could depend on what RBI decides on its deregistration application.

Key facts at a glance

Why the shift matters

By switching from parametric scoring to a standalone asset-size benchmark, RBI is signalling a preference for a more predictable and verifiable classification mechanism. The change also widens the scope to include eligible government-owned NBFCs in the Upper Layer, reinforcing RBI’s ownership-neutral posture.

At the same time, RBI has kept the framework dynamic by shortening the review period for the ₹1 lakh crore threshold to three years, which can recalibrate the perimeter as the sector grows. For the market, the immediate effectiveness from June 24 makes the updated approach relevant for ongoing compliance planning, especially for large NBFCs close to the threshold.

Conclusion

RBI’s June 24 directions reset NBFC Upper Layer identification around a clear ₹1,00,000 crore standalone asset benchmark, bring government-owned NBFCs into scope, and accelerate threshold reviews to a three-year cycle. Separately, RBI’s July 1, 2026 amendment tightens conditions for exemptions below ₹1,000 crore and sets a December 31, 2026 deadline for eligible deregistration applications through PRAVAAH.