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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 the first cut of the upcoming regulatory framework with a holistic revamped approach of RBI for the NBFC Sector as a whole. This is the first cut as there is a need for a 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 the revised regulatory framework, from now onwards the NBFC will be categorized into Four (4) Levels starting from the Base layer to Top Layer. It has no such change in comparison to the earlier placed draft framework for public comments. The finalization of 4 categories is more or less based on NBFC size, activity, and perceived riskiness.

A) Base Layer:

It is entry-level and among existing NBFCs, most of them fall into this segment. This layer includes non-deposit-taking NBFCs 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.

B) Middle Layer:

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

C) Upper Layer:

The inclusion of NBFC under this category is based on the scoring methodology of year-on-year, ending 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 a substantial increase in the potential systematic risk from NBFC.

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

  • 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 the 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 this scale-based regulatory framework.
  • Government-owned NBFCs 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 the 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 the 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 an 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:

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, the regulator has acknowledged in writing 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 an indirect message to all existing NBFCs if they do have such directors on the Board or not. If not, advisable to add on, or else the RBI can ask the reason therefore whereas as far as the new or fresh application is concerned, more gravity will be given to the experience director on the Board of NBFC.

D) Risk Management Committee:

NBFCs being in Base Layer, existing or fresh 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 relatives 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

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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

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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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