RBI To Simplify NBFC Classification Into Three-Tier Framework: RBI Governor

(MENAFN- KNN India) New Delhi, Apr 9 (KNN) The Reserve Bank of India (RBI) is set to introduce a new framework to classify non-banking financial companies (NBFCs) into three categories-upper, middle, and lower layers, Governor Sanjay Malhotra said following the latest monetary policy announcement.

He indicated that the framework will be rolled out soon, although the central bank is yet to decide whether it will first issue draft guidelines for public consultation.

Existing Framework Under Review

Currently, NBFCs are regulated under the Scale-Based Regulation (SBR) framework introduced in October 2021. This system classifies NBFCs into four layers-base, middle, upper, and top-based on their size, systemic importance, and risk profile.

The RBI periodically identifies entities in the upper layer (NBFC-UL) using asset size and a scoring methodology.

For 2024–25, this category includes major financial institutions such as Bajaj Finance Limited, Shriram Finance Limited, Tata Capital Limited, Aditya Birla Finance Limited, and Mahindra & Mahindra Financial Services Limited.

Housing finance companies like LIC Housing Finance Limited and PNB Housing Finance Limited, as well as core investment firms such as Tata Sons Private Limited, also feature in this segment, reflecting the diversity of entities classified as systemically important.

Rationale for Simplification

The proposed move to a three-tier structure suggests a possible simplification of the existing regulatory framework. At present, smaller and less complex NBFCs fall under the base layer, while larger and more systemically significant entities are subject to tighter regulations in the middle and upper layers. A residual top layer exists for entities posing heightened systemic risks.

NBFCs are also categorised based on their liability structure-deposit-taking and non-deposit-taking-as well as by activity, including investment and credit companies, housing finance firms, and microfinance institutions.

Regulatory Easing for Smaller NBFCs

In parallel, the RBI has proposed exempting smaller NBFCs from registration requirements if they meet certain conditions, including having no public funds, no customer interface, and assets below ₹1,000 crore.

Such entities can apply for voluntary deregistration through the PRAVAAH portal by September 30, 2026, in a move aimed at reducing compliance burdens and improving ease of doing business.

Focus on Risk-Based Supervision

The upcoming framework is expected to further refine the RBI's risk-based approach to regulating NBFCs, ensuring that oversight remains proportionate to the size and systemic importance of entities while maintaining financial stability.

(KNN Bureau)

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