Source: BL
Context:
The Reserve Bank of India (RBI) is expected to release an updated list of ‘Upper Layer’ Non-Banking Financial Companies (NBFCs) by mid-2026, with a strong possibility of including large NBFCs promoted by banks or backed by strong corporate promoters.
RBI’s Scale-Based Regulatory (SBR) Framework
The Scale-Based Regulatory (SBR) Framework is a risk-based regulatory architecture introduced by the Reserve Bank of India for Non-Banking Financial Companies (NBFCs).
It links the intensity of regulation to the size, complexity, and systemic risk posed by NBFCs.
Objectives
- Align regulation with systemic risk rather than a one-size-fits-all approach
- Strengthen financial stability
- Improve governance, prudential norms, and transparency
- Reduce regulatory arbitrage between banks and NBFCs
Four-Tier Classification under SBR
1. Base Layer (NBFC-BL)
- Non-systemically important NBFCs
- Lowest regulatory intensity
- Basic prudential and conduct norms
2. Middle Layer (NBFC-ML)
- All deposit-taking NBFCs
- Non-deposit taking NBFCs above a threshold size
- Enhanced governance, risk management, and disclosure norms
3. Upper Layer (NBFC-UL)
- NBFCs identified as systemically significant
- Subject to bank-like regulations (capital, leverage, governance)
- Identified using a scoring-based framework (size, interconnectedness, complexity)
4. Top Layer (NBFC-TL)
- Expected to be empty normally
- For NBFCs posing extreme systemic risk
- RBI may impose very stringent supervisory measures
Key Regulatory Features
- Stricter capital adequacy norms for higher layers
- Mandatory governance standards (board structure, risk committees)
- Enhanced disclosures and audits
- Prompt Corrective Action (PCA) applicability
