RBI to Revamp NBFC Classification Framework in 2026

A New Regulatory Approach for NBFCs

The Reserve Bank of India (RBI) is preparing to introduce a new framework for the classification of Non-Banking Financial Companies (NBFCs), according to Governor Sanjay Malhotra. Speaking at a press conference following the April monetary policy meeting, the Governor confirmed that the central bank will soon revise the existing layer-based regulatory structure. This move signals a significant shift in how the rapidly growing NBFC sector will be supervised, aiming to align regulations more closely with the evolving size, complexity, and risk profiles of these financial institutions.

Details of the Upcoming Framework

Governor Malhotra stated, “We are coming up with a new framework for the NBFCs. Very soon, you should see that. New framework for categorisation of NBFCs into upper, middle layer, et cetera.” This suggests a potential simplification or restructuring of the current model. When asked whether the new guidelines would be released as a draft for public consultation or as a final directive, the Governor indicated that a decision is still pending. “Generally, we do a draft. I mean, in this case, we will take a call,” he remarked, leaving the exact process open.

The Current Scale-Based Regulation (SBR)

The existing regulatory structure, known as the Scale-Based Regulation (SBR) framework, was introduced in October 2021. It classifies NBFCs into a four-tiered system based on their systemic importance and risk profile. The layers are:

• Base Layer (NBFC-BL): Includes smaller, non-deposit-taking NBFCs with an asset size below ₹1,000 crore.
• Middle Layer (NBFC-ML): Comprises all deposit-taking NBFCs and larger non-deposit-taking NBFCs.
• Upper Layer (NBFC-UL): Consists of NBFCs identified by the RBI as having enhanced systemic risk. These entities are subject to stricter prudential regulations.
• Top Layer (NBFC-TL): This layer is ideally meant to be empty and would only be populated if the RBI perceives a substantial increase in systemic risk from specific NBFCs in the Upper Layer.

Systemically Important Players in the Upper Layer

Under the SBR framework, the RBI periodically identifies NBFCs that qualify for the Upper Layer based on a specific scoring methodology and asset size. For the financial year 2024-25, this list includes some of the largest and most significant players in the Indian financial landscape. Prominent names include Bajaj Finance Limited, Shriram Finance Limited, Tata Capital Limited, Aditya Birla Finance Limited, and Mahindra & Mahindra Financial Services Limited. The list also features housing finance companies like LIC Housing Finance Limited and PNB Housing Finance Limited, as well as core investment companies such as Tata Sons Private Limited, highlighting the diverse nature of entities under heightened supervision.

Regulatory Easing for Smaller NBFCs

In parallel with refining the framework for larger entities, the RBI has also moved to reduce the regulatory burden on smaller NBFCs. As of February 2026, the central bank proposed exempting NBFCs with assets under ₹1,000 crore from mandatory registration, provided they do not access public funds and have no customer interface. This new category, termed “Unregistered Type I NBFCs,” is designed to offer a 'light-touch' regulatory approach. Eligible companies can apply for voluntary deregistration through the PRAVAAH portal by September 30, 2026, a step aimed at improving the ease of doing business for entities with low systemic risk.

New NBFC Categories Summarized

The recent amendments have introduced a more granular classification system. The table below outlines the new categories based on their access to public funds, customer interface, and asset size.

Amendments to Risk Management Norms

Effective April 1, 2026, the RBI has also amended its directions on Capital Adequacy and Concentration Risk Management. A key change is the introduction of a new lending category called “high-quality infrastructure projects.” This allows NBFCs to apply more refined risk weights to their exposures in the infrastructure sector, particularly for stable, revenue-generating assets. This move is expected to provide capital relief for NBFCs financing such projects and encourage long-term funding for critical sectors like roads, power, and logistics, aligning with India's growth agenda.

Market Impact and Analysis

The series of regulatory changes reflects the RBI's dynamic approach to supervising the NBFC sector. For smaller NBFCs, the exemption from registration significantly reduces compliance costs. For larger institutions, especially those financing infrastructure, the revised risk management norms could improve capital efficiency and returns. The new classification framework, once unveiled, will bring greater clarity to the regulatory expectations for different segments of the NBFC market. This shift towards a more risk-sensitive framework enhances systemic stability while ensuring that credit continues to flow to productive sectors of the economy.

Conclusion: A Forward-Looking Regulatory Stance

The RBI's plan to introduce a new classification framework for NBFCs is a proactive step to manage the sector's growing influence and complexity. By differentiating regulations based on risk, the central bank aims to foster a resilient and efficient non-banking financial ecosystem. Stakeholders in the financial sector now await the release of the detailed framework, which will shape the operational and strategic landscape for all NBFCs in the coming years.