Scale-Based Regulation of NBFCs

The RBI’s scale-based regulation classifies non-banking financial companies into groups so that larger or riskier institutions face closer supervision and stricter requirements. It uses four regulatory layers, reflecting an NBFC’s size, activities and risk profile, rather than applying identical rules to every company.

Basis of classification

The framework became effective on 1 October 2022. Classification combines asset size and deposit-taking status with the nature of activities and potential systemic risk, meaning the risk that problems in an institution could disrupt the wider financial system.

• Regulatory requirements become progressively more stringent from the Base Layer to the Top Layer.
• Asset size is not the sole criterion: some categories receive a prescribed minimum placement because of their activities.

The four regulatory layers

• The Base Layer generally comprises non-deposit-taking NBFCs with assets below ₹1,000 crore, except categories required to enter higher layers.
• The Middle Layer comprises all deposit-taking NBFCs, irrespective of asset size, and non-deposit-taking NBFCs with assets of ₹1,000 crore or more, unless they qualify for a higher layer. It also includes specified activity-based categories.
• The Upper Layer comprises NBFCs specifically identified by the RBI as warranting enhanced regulation through a scoring methodology covering size, interconnectedness, complexity and other risk indicators. The ten largest eligible NBFCs by asset size must remain in this layer irrespective of other factors.
• The Top Layer is normally expected to remain empty. The RBI may move an Upper Layer NBFC into it if it considers that the institution’s potential systemic risk has increased substantially.

Activity-specific placement

Some NBFC categories have special placement rules, so the general asset-size threshold cannot be applied mechanically.

• Peer-to-peer lending platforms, Account Aggregators and Non-Operative Financial Holding Companies always remain in the Base Layer.
• Standalone Primary Dealers and Infrastructure Debt Fund NBFCs always remain in the Middle Layer.
• Core Investment Companies, Housing Finance Companies and Infrastructure Finance Companies belong in the Middle or Upper Layer, as applicable, rather than the Base Layer.