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Decoding the new Scale Based Regulatory Framework for Non-Banking Finance Company by Reserve Bank of India at Entry Level



Reserve Bank of India (RBI) has provided the final regulatory framework out of proportion from the discussion paper placed on 22nd Jan, 2021 for public comments yesterday i.e. 22nd Oct, 2021 to be effective from 1st Oct, 2022. It is first cut of upcoming regulatory framework with holistic revamped approach of RBI for NBFC Sector as whole. This is first cut as there is need of few clarities and often the phrase of “will provided in due course” is mentioned in the publish circular.


Circular No.: RBI/2021-22/112 DOR.CRE.REC. No.60/03.10.001/2021-22 dated Oct 22, 2021

Structure of NBFC:

As per revised regulatory framework, now onwards the NBFC will be categorized into Four (4) Level starting from Base layer to Top Layer. It has no as such change in comparison to earlier placed draft framework for public comments. The finalization of 4 category is more or less based on NBFC size, activity and perceived riskiness.

A) Base Layer:

It is entry-level and among existing NBFC, most of them fall on this segment. This layer includes non-deposit taking NBFC below assets size of INR 1,000 Cr and NBFC-P2P, NBFC-AA, Non-operative Financial Holding Company (NOFHC) and NBFC not availing public funds and not having any customer interface.

Read Our Blog: Non-Operative Financial Holding Company

B) Middle Layer:

It consists of those NBFC accepting deposit irrespective of size and non-deposit taking NBFCs with assets size of INR 1,000 Cr or more. Similarly, the NBFC undertaking activities of Standalone Primary Dealers (SPDs), Infrastructure Debt Fund, Core Investment Company, Housing Finance Company and Infrastructure Finance Companies.

C) Upper Layer:

The inclusion of NBFC under this category is based on scoring methodology of year on year, ended 31st March every year. RBI by way of identified parametric scoring methodology, comprising of quantitative and qualitative parameters shall have a weightage of 70% and 30% respectively.

D) Top Layer:

It will ideally remain empty. The upper layer entity can populate on this layer only if the RBI is of the opinion that there is substantial increase in the potential systematic risk from NBFC.

Out of this structure, there are some thump rules of categorization too for NBFC which says: -

  • NBFC-P2P, NBFC-AA, NOFHC and NBFCs without public funds and customer interface will always remain in the base layer of the regulatory structure.
  • NBFC-D, CIC, IFC and HFC will be included in Middle Layer or Upper Layer (and not in base layer), as the case may be. SPD and IDF will always remain in the Middle Layer.
  • ICC, MFI, Factor and MGC could lie in any of the layers of the regulatory structure depending on the parameters of these scale based regulatory framework.
  • Government-owned NBFC shall be placed in the Base Layer or Middle Layer, as the case may be but not in Upper Layer till further notice.

Regulatory Changes:

Upon revised scale based regulatory framework, the major changeover is on following points which are briefly discussed as below: -

B) Net Owned Fund:

The minimum net owned fund (NOF) for NBFC-ICC, NBFC-MFI and NBFC-Factors shall be increased to INR 10 Cr. 

The following timeline is provided for the existing NBFCs to achieve the NOF of INR 10 Cr.

  • NBFC – ICC, NOF INR 5 Cr by March 31, 2025, and INR 10 Cr by March 31, 2027
  • NBFC – MFI, NOF INR 7 Cr by March 31 (INR 5 Cr in North-East Region), 2025 and INR 10 Cr by March 31, 2027
  • NBFC – Factors, NOF INR 7 Cr by March 31, 2025, and INR 10 Cr by March 31, 2027

It is prudent to note it down here, for fresh application post 1st Oct 2022 the applicant should have NOF of INR 10 Cr to get entity registered as NBFC as given above category.

However, for NBFC-P2P, NBFC-AA, and NBFCs with no public funds and no customer interface, the NOF shall continue to be INR 2 Cr. It is further clarified that there is no change in the existing regulatory minimum NOF for NBFC – IDF and IFC (INR 300 Cr), MGC (INR 100 Cr), HFC (INR 20 Cr), and SPD (INR 150 Cr/250 Cr based on involvement in core activities or non-core activities too).

B) NPA Classification:

The existing NPA classification norm stands changed to the overdue period of more than 90 days for all categories of NBFCs. The existing base layer NBFC has the following timeline to adhere to the 90 days NPA as under:

NPA Norm Timeline
>150 days overdue  By March 31, 2024
>120 days overdue By March 31, 2025
>90 days By March 31, 2026

B) Experience Professional on Board: 

Finally, regulator has acknowledged in writing that the need for professional experience in the Board of NBFC to run the show, accordingly at least one of the directors shall have relevant experience of having worked in a Bank/NBFC. Precisely, it is indirect message to all existing NBFC if they do have such director in the Board or not. If not, advisable to add on, else the RBI can ask the reason therefore whereas as far as new or fresh application is concern, the more gravity will be given to experience director on the Board of NBFC.

Read Our Blog: Process to Apply for NBFC Registration in India

D) Risk Management Committee:

NBFCs being in Base Layer, existing or fresh one should form Risk Management Committee (RMC) to focus on risk management either at the Board or executive level. It shall be responsible for evaluating the overall risks faced by the NBFC including liquidity risk and will report to the Board.

E) Disclosures:

Disclosure requirements shall be expanded, inter alia, to include types of exposure, related party transactions, loan to directors/senior officers and customer complaints.

F) Loan Limit:

Loan to directors, senior officers, and relative of directors’ matter has to be taken on board and placed on record. Detailed circulars on these will be issued by the Reserve Bank in due course.

NBFC Registration

Want to start your NBFC registration under the Companies Act, engaged in the business of providing credit facilities like loans, accepting deposits, leasing, hire purchase, retirement planning, facilitating security.

NBFC Compliance

Have you done with Certificate of Registration (CoR) from Reserve Bank of India (RBI) as Non-Banking Financial Company, then now take a breath and let’s foster for better corporate governance and compliance mandate by RBI.

NBFC Collaboration

NBFC Collaboration is a new business term in which NBFC License holders collaborate with banks or Fintech companies for sourcing of leads and funding.

This portion of the site is for informational purposes only. The content is not legal advice. The statements and opinions are the expression of author, not corpseed, and have not been evaluated by corpseed for accuracy, completeness, or changes in the law.


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Vinay Thakur is Managing Partner in Corpseed. He focused on payments, digital transformation, and financial technology for over 15 years and holds strong expertise on fintech startups, banking innovation, and investors with a keen understanding of...
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