RBI’s Scale-Based Regulatory (SBR) Framework

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