Overview
The Reserve Bank of India (RBI) introduced Scale-Based Regulation (SBR) for Non-Banking Financial Companies (NBFCs) to create a more proportionate, risk-sensitive and forward-looking regulatory framework. The SBR classifies NBFCs into four layers — Base, Middle, Upper and Top — based on their size, activity and perceived riskiness, with progressively higher regulatory expectations at each layer.
Why Scale-Based Regulation for NBFCs?
The NBFC sector has grown significantly in size, diversity and interconnectedness. RBI’s SBR aims to:
Enable proportionate and risk-based regulation
Strengthen financial stability
Address emerging risks from scale and complexity
Enhance governance, compliance and consumer protection
The Four-Layer Regulatory Framework
NBFCs are classified into four layers based on their size, activity and perceived riskiness, with increasing regulatory intensity from the Base Layer to the Top Layer.
Non-deposit taking NBFCs below ₹1,000 crore and specified categories.
Middle Layer(NBFC-ML)All deposit-taking NBFCs, non-deposit taking NBFCs with assets of ₹1,000 crore and above, and specified categories.
Upper Layer(NBFC-UL)NBFCs specifically identified by RBI for enhanced regulation, including top ten eligible NBFCs by asset size.
Top Layer(NBFC-TL)Ideally expected to remain empty and can be populated if RBI sees substantial increased systemic risk in an Upper Layer NBFC.
Base Layer (NBFC-BL)
- Non-deposit taking NBFCs below ₹1,000 crore.
- Includes specified categories as per RBI.
Middle Layer (NBFC-ML)
- All deposit-taking NBFCs.
- Non-deposit taking NBFCs with assets of ₹1,000 crore and above.
- Includes specified categories as per RBI.
Upper Layer (NBFC-UL)
- NBFCs specifically identified by RBI for enhanced regulation.
- Ten eligible NBFCs by asset size reside in this layer.
Top Layer (NBFC-TL)
- Ideally expected to remain empty.
- Can be populated if RBI sees substantial increased systemic risk in an Upper Layer NBFC.
Key Regulatory Areas under SBR
RBI’s SBR strengthens regulation across multiple dimensions. The key areas include:
Capital & Prudential Norms
Progressively higher prudential requirements with increase in scale, activity and risk profile.
Governance & Compliance
Enhanced board oversight, independent compliance function and CCO for NBFC-ML and NBFC-UL.
Risk Management
Stronger risk management frameworks tailored to the size, complexity and riskiness of the NBFC.
Asset Quality & Provisioning
Robust asset classification and provisioning standards aligned with regulatory expectations.
Customer Protection
Stronger measures for fair practices, grievance redressal and customer-centric conduct.
Digital Lending
Heightened oversight on digital lending arrangements, including due diligence, outsourcing and customer disclosures.
Practical Compliance Checklist
A high-level checklist for NBFCs to assess and strengthen their readiness under SBR.
- 1
Assess layer classification, activity and risk profile.
- 2
Review applicability of regulatory requirements for your layer.
- 3
Establish/strengthen compliance function and CCO for NBFC-ML and NBFC-UL.
- 4
Enhance governance, risk management and internal controls.
- 5
Strengthen customer protection and digital lending compliance.
- 6
Conduct periodic gap assessment and board-level review.
Astronis Perspective
RBI’s Scale-Based Regulation marks a significant step towards a more resilient and well-governed NBFC sector. NBFCs should view SBR not just as a compliance requirement, but as an opportunity to strengthen their governance, risk management and business resilience for sustainable growth.
Key Takeaways
SBR introduces a four-layer regulatory framework based on size, activity and riskiness.
Regulatory intensity increases progressively from Base to Top Layer.
NBFC-ML and NBFC-UL require an independent compliance function and CCO.
NBFCs should proactively assess their layer, strengthen governance and compliance, and build long-term resilience.
FAQs
Some of the common questions we receive on RBI’s Scale-Based Regulation for NBFCs.
What is Scale-Based Regulation (SBR) for NBFCs?
SBR is RBI’s framework for classifying NBFCs into Base, Middle, Upper and Top Layers, with regulatory expectations that generally increase in line with their size, activity and perceived risk.
What are the key differences between the four layers?
The layers distinguish NBFCs by criteria such as deposit-taking status, asset size, specified activities and RBI identification. The Upper Layer attracts enhanced requirements, while the Top Layer is intended for an Upper Layer NBFC if systemic risk materially increases.
How are NBFCs classified into different layers?
Classification depends on applicable RBI criteria, including asset size and business category. RBI also identifies eligible NBFCs for the Upper Layer using its prescribed methodology. NBFCs should verify their classification against current RBI directions.
Do regulations for lower layers automatically apply to higher layers?
Regulations applicable to lower layers generally flow upward to higher layers unless RBI states otherwise. Additional requirements may apply to higher layers.
Knowledge Centre
Explore our curated resources on NBFC regulation, compliance and governance.
NBFC SBR Compliance Checklist
Practical checklist for NBFCs under SBR.
Resource not yet available for download.Four-Layer Classification Guide
Detailed guide to the four-layer regulatory framework.
Resource not yet available for download.Board & CCO Governance Checklist
Key governance considerations for NBFC-ML and NBFC-UL.
Resource not yet available for download.Regulatory Gap Assessment Template
Template to assess regulatory gaps under SBR.
Resource not yet available for download.Client Testimonials & Reviews
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