RBI Proposes New NBFC Rules: ₹1 Lakh Crore Asset Size to Define Upper Layer

Introduction to the Proposed Regulatory Shift

The Reserve Bank of India (RBI) has released draft directions proposing a significant overhaul of the framework used to classify Non-Banking Financial Companies (NBFCs). The central bank aims to simplify its Scale-Based Regulation (SBR) by making asset size the primary determinant for identifying entities in the 'Upper Layer' (UL). Under the new proposal, NBFCs with assets of ₹1 lakh crore and above will automatically qualify for this category, replacing the current complex, multi-factor scoring methodology. This move is intended to bring greater transparency, simplicity, and predictability to the regulatory process for systemically important financial institutions.

Simplifying the Identification Criteria

The existing mechanism for identifying Upper Layer NBFCs involves a combination of quantitative and qualitative parameters, including size, interconnectedness, and supervisory judgment. The RBI's draft amendment proposes to scrap this parametric system in favor of a clear, rule-based threshold. According to the draft, this change to an absolute criteria based on asset size will make the identification process more transparent. While the RBI will continue to identify Upper Layer NBFCs annually, the process will now be anchored around the ₹1 lakh crore asset size. The central bank has also proposed that this threshold will be reviewed every five years to ensure it remains relevant to the evolving financial landscape.

Inclusion of Government-Owned NBFCs

A key aspect of the proposed framework is the inclusion of government-owned NBFCs in the Upper Layer classification. Previously, the SBR framework placed these state-run entities in the Base or Middle Layer, regardless of their size. The RBI now intends to establish an 'ownership neutral' regulatory regime. This means large public-sector NBFCs, some of which have loan books exceeding ₹5 trillion, will be subject to the same enhanced regulatory scrutiny as their private-sector counterparts if they meet the asset size criteria. This step is seen as crucial for addressing systemic risks uniformly across the financial sector.

Implications for Major NBFCs

The proposed changes will have a direct impact on the country's largest NBFCs. The 2024-25 list already includes 15 entities in the Upper Layer, such as Bajaj Finance, Shriram Finance, LIC Housing Finance, and Tata Sons. Tata Sons, with an asset base of ₹1.75 lakh crore as of March 2025, has been a focal point of discussion due to the mandatory listing requirement for unlisted Upper Layer NBFCs. The company had been seeking to avoid an IPO. The simplification of rules may alter the strategic considerations for such large conglomerates. The enhanced regulations for Upper Layer NBFCs include higher capital adequacy requirements, stricter governance norms, and mandatory public listing within three years of classification.

Understanding the Scale-Based Regulation Framework

The SBR framework, introduced in late 2021, categorizes NBFCs into four distinct layers to align regulation with their systemic importance. This structure allows the RBI to apply proportional oversight, focusing its resources on entities that pose the greatest potential risk to financial stability.

Relaxation on State Government Guarantees

In a related amendment, the RBI has proposed a significant relaxation for Upper Layer NBFCs regarding their exposures backed by state government guarantees. The draft norms suggest that these exposures can be shifted to the state government for risk assessment purposes and will attract a lower risk weight of 20%. This is a substantial reduction that aligns the risk closer to that of sovereign exposures. Importantly, the proposal removes any cap on the extent to which such exposures can be shifted, which could reduce the capital NBFCs need to hold and potentially encourage more lending for state-backed infrastructure and development projects.

Market Impact and Analysis

The proposed shift towards an asset-based classification is expected to enhance financial stability by bringing more large entities under stricter supervision. By including government-owned NBFCs, the RBI is closing a regulatory gap and ensuring that all systemically important players are subject to the same high standards. The move simplifies compliance for NBFCs and reduces regulatory ambiguity. For investors and the market, this provides a clearer picture of which institutions are considered critical to the financial system. The relaxation on state-guaranteed loans could also provide a fillip to public-private partnerships and state-led capital expenditure.

Conclusion: A Move Towards Stronger Oversight

The RBI's proposal to redefine the criteria for Upper Layer NBFCs marks a decisive step towards a more robust and transparent regulatory environment. By focusing on a simple asset-size threshold of ₹1 lakh crore and ensuring ownership neutrality, the central bank is strengthening its oversight of the non-banking financial sector. The final directions, once implemented, will likely reshape the strategic landscape for India's largest NBFCs and reinforce the stability of the broader financial ecosystem.