The Reserve Bank of India issued the RBI (Non-Banking Financial Companies – Registration, Exemptions and Framework for Scale Based Regulation) Second Amendment Directions, 2026 on June 24, 2026, fundamentally overhauling how large non-banking financial companies are classified for enhanced regulatory oversight. Under the new framework, any NBFC with an asset size of ₹1 lakh crore or more based on its latest audited balance sheet will automatically qualify as an Upper Layer NBFC, replacing a complex parametric scoring system that had been in place since 2021. The changes also bring eligible government-owned NBFCs into the Upper Layer for the first time and reduce the review cycle for the asset threshold from five years to three years.
What Is the Scale Based Regulation Framework for NBFCs?
The Scale Based Regulation (SBR) framework was introduced by the RBI in October 2021 to bring a risk-proportionate regulatory approach to the NBFC sector. Before SBR, all NBFCs were largely governed by a uniform set of regulations regardless of their size, complexity, or interconnectedness with the financial system. The framework categorises NBFCs into four layers based on their size, activity, and perceived riskiness.
| Layer | Description |
|---|---|
| Base Layer (NBFC-BL) | Smallest NBFCs with asset size below ₹1,000 crore. Subject to basic regulatory requirements |
| Middle Layer (NBFC-ML) | NBFCs with asset size of ₹1,000 crore or more. Subject to moderately higher prudential norms |
| Upper Layer (NBFC-UL) | Systemically significant NBFCs identified annually by RBI. Subject to enhanced regulatory oversight similar to banks |
| Top Layer (NBFC-TL) | Ideally remains empty. Can be populated if RBI believes specific NBFCs pose substantially increased systemic risk |
NBFCs placed in higher layers are automatically subject to all regulations applicable to the lower layers, plus additional requirements specific to their layer. The Upper Layer is the most significant operational layer because NBFCs classified here face tighter governance standards, additional disclosure requirements, stricter concentration norms, and mandatory listing on stock exchanges within three years of identification.
What Has Changed in the Identification of NBFC-UL?
The Old Methodology: Parametric Scoring Plus Top 10
Under the earlier framework, the RBI used a two-pronged methodology to identify NBFC-ULs. First, the top ten NBFCs by asset size were automatically placed in the Upper Layer, irrespective of any other factor. Second, a parametric scoring model was applied to a set of the top 50 NBFCs, assigning scores based on quantitative parameters (70 per cent weightage) such as asset size, interconnectedness, and complexity, along with qualitative parameters and supervisory judgment (30 per cent weightage). The highest-scoring entities from this pool were then classified as NBFC-UL.
This approach, while thorough, suffered from a lack of transparency and predictability. NBFCs could not easily determine their regulatory fate in advance, and the supervisory assessment element introduced an element of discretion.
The New Methodology: Absolute Asset Size Criterion
The amended directions replace this entire apparatus with a single, clear rule. Paragraph 24 of the directions now states: “The Upper Layer shall consist of NBFCs having asset size of ₹1,00,000 crore and above as per the latest audited balance sheet for the financial year.”
This means any NBFC whose standalone audited balance sheet shows assets of ₹1 lakh crore or more will automatically be considered for classification as NBFC-UL. The RBI will continue to conduct an annual identification exercise and notify the list of NBFC-ULs each year. However, the basis for that identification is now purely the asset size threshold, removing both the parametric scoring and the automatic inclusion of the top ten by asset size.
Government-Owned NBFCs Brought Within the Fold
A notable feature of the amended directions is the inclusion of government-owned NBFCs in the Upper Layer framework. Previously, the SBR framework placed government-owned NBFCs only in the Base Layer or the Middle Layer, effectively exempting them from Upper Layer classification regardless of their size. The new directions align with the RBI’s stated principle of an ownership-neutral regulatory regime for NBFCs.
Government-owned NBFCs that meet the ₹1 lakh crore asset threshold will now be evaluated for inclusion in the Upper Layer based on factors such as their size and interconnectedness with the financial system. However, the RBI has granted these entities a crucial concession. While all NBFC-ULs are normally required to list on stock exchanges within three years of being notified, government-owned NBFC-ULs are exempt from this mandatory listing requirement. They are also exempt from pre-listing disclosure norms.
At the same time, the RBI has withdrawn the blanket exemptions from concentration norms that were previously available to government-owned NBFCs. Going forward, these entities must adhere to the exposure concentration limits applicable to their respective regulatory layer. Existing breaches of exposure limits will be allowed to run off until maturity, but no fresh exposures to such obligors will be permitted.
Key Implications of the Revised Framework
Enhanced Oversight for Large NBFCs
The shift to an absolute asset size criterion brings greater regulatory certainty for the sector. NBFCs can now anticipate their regulatory status based on a single objective metric. Those that cross the ₹1 lakh crore threshold must prepare for the enhanced requirements that come with Upper Layer classification. These include tighter governance standards, additional disclosures, stricter prudential norms on asset classification and provisioning, and adherence to the Large Exposures Framework (LEF) .
Tata Sons: The Listing Question
The revised framework has direct implications for Tata Sons, the holding company of the Tata Group and registered as a Core Investment Company (CIC) . With a standalone asset size of approximately ₹1.75 lakh crore, Tata Sons clearly meets the new threshold. It was first classified as an NBFC-UL in 2022, which triggered a mandate to list on stock exchanges within three years (by September 2025). However, Tata Sons had applied to cancel its CIC registration to avoid the listing requirement, and the matter remained pending with the RBI.
Under the new directions, the asset size criterion makes Tata Sons’ eligibility for the Upper Layer unambiguous. The RBI’s final decision on Tata Sons’ application to deregister as a CIC will now be closely watched, as it will determine whether the conglomerate must proceed with one of India’s most anticipated public listings.
Higher Exposure Limit for Infrastructure Finance Companies
The RBI also revised the Large Exposures Framework for NBFCs classified as Infrastructure Finance Companies (NBFC-IFCs) in the Upper Layer. The single-party and group exposure limit for these entities has been increased from 35 per cent to 45 per cent of their eligible capital base. This change recognises the capital-intensive nature of infrastructure financing and provides IFCs with greater lending headroom for large projects.
Review Cycle Reduced to Three Years
The original draft directions, released for public comments in April 2026, had proposed a five-year review cycle for the asset size threshold. The final directions, however, mandate that the threshold be reviewed every three years. This change reflects the rapid growth trajectory of the NBFC sector, where asset sizes can increase significantly within a few years. A shorter review period ensures that the threshold remains relevant and does not become outdated, while also giving the RBI the flexibility to adjust it in response to sectoral trends and macroeconomic conditions.
Framework for NBFCs Owned by Scheduled Commercial Banks
The amended directions also introduce specific provisions for NBFCs that are group entities of scheduled commercial banks. Where both the bank and its NBFC subsidiary undertake the same financial activity, the NBFC will now be required to comply with the relevant banking regulations applicable to that activity. However, their existing layer classification under the SBR framework will remain unchanged. The Upper Layer requirements will continue to apply to such entities, except for the mandatory listing provisions where bank-owned NBFCs are already consolidated with their parent banks for regulatory purposes.
Key Takeaways
- The RBI (NBFC – Registration, Exemptions and Framework for Scale Based Regulation) Second Amendment Directions, 2026 were issued on June 24, 2026, replacing the parametric scoring model with a single asset size criterion of ₹1 lakh crore for identifying NBFC-ULs.
- The new rule applies to standalone audited balance sheet asset size, and compliance obligations attach from the date the RBI notifies the NBFC-UL list annually.
- The asset size threshold will be reviewed every three years, a reduction from the five-year cycle proposed in the draft directions issued in April 2026.
- Government-owned NBFCs meeting the ₹1 lakh crore threshold will be considered for Upper Layer classification for the first time, but they are exempt from the mandatory listing requirement within three years.
- The Large Exposures Framework limit for NBFC-IFCs in the Upper Layer has been raised from 35 per cent to 45 per cent of their eligible capital base.
- The earlier blanket exemptions from concentration norms for government-owned NBFCs have been withdrawn, bringing them under the same exposure framework as other entities in their layer.
