JSA Prism | Finance | June 2026

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Reserve Bank of India overhauls framework for Upper Layer Non-Banking Financial Companies and Government-owned Non-Banking Financial Companies

The Reserve Bank of India (“RBI”), vide its notification dated June 24, 2026 (“Notification”), has introduced important amendments to the scale-based regulatory framework applicable to Non-Banking Financial Companies (“NBFCs”). The amendments primarily seek to:

• simplify how Upper Layer NBFCs (“UL-NBFCs”) are identified; and
• strengthen the regulatory framework applicable to Government-owned NBFCs.

Key amendments under the Notification

Objective test for identifying UL-NBFCs

One of the most significant changes introduced by the Notification is the shift to a clear, objective test for identifying NBFCs in the Upper Layer.

Earlier, the RBI followed a score-based approach, which involved regulatory assessment across various parameters and therefore carried an element of subjectivity. Under the amended framework, the RBI will classify an NBFC in the upper layer if it has an asset size of INR 1,00,000 crore (Indian Rupees one lakh crore) or more, as per its latest audited annual balance sheet.

Threshold to be reviewed every three years

The RBI has retained the asset-size threshold for upper layer classification at INR 1,00,000 crore (Indian Rupees one lakh crore), noting that it is based on the current profile of the NBFC sector and the financial position of existing UL-NBFCs.

Importantly, the RBI has clarified that this threshold will be reviewed every 3 (three) years, instead of the earlier contemplated 5 (five) year review period. This gives the RBI flexibility to recalibrate the framework in line with the growth, size and systemic importance of the NBFC sector.

Government-owned NBFCs brought within the upper layer framework

Another important amendment is the inclusion of Government-owned NBFCs within the upper layer framework. Earlier, the Government-owned NBFCs were placed only in the base layer or middle layer. The RBI has now changed this position.

With the amendment, the RBI has harmonised the regulatory treatment of privately owned NBFCs and Government-owned NBFCs. The change is consistent with the RBI’s broader approach of moving towards ownership-neutral regulation, where regulatory intensity is driven by size, risk and systemic importance rather than ownership.

That said, the RBI has provided a limited exemption for UL-NBFCs that are fully owned and controlled by the Government. Such entities are not required to comply with certain listing and disclosure requirements that would otherwise apply to UL-NBFCs. This exemption is limited in scope and should not be read as a general relaxation for all Government-linked NBFCs.

Exposure norms tightened for Government-owned NBFCs

The Notification also tightens the exposure framework applicable to Government-owned NBFCs. Such entities must now comply with the concentration and exposure limits applicable to their respective regulatory layer.

Existing deviations may continue until the maturity of loans already sanctioned. However, Government-owned NBFCs must not take further exposure to such borrowers where limits are already breached.

At the same time, the RBI has provided a calibrated flexibility. Government-owned NBFCs in the middle layer and upper layer may take exposure beyond the prescribed limits where such exposure is fully covered by eligible credit-risk-transfer instruments, resulting in zero net incremental exposure. This recognises genuine risk-transfer arrangements while discouraging regulatory forbearance based purely on ownership.

Relief for NBFC-Infrastructure Finance Companies

The amendments also introduce a welcome change for NBFC-Infrastructure Finance Companies (“NBFC-IFCs”). Considering the financing requirements of India’s infrastructure sector, the group exposure limit for UL- NBFC-IFCs has been increased to 45%.

This is expected to provide additional lending headroom for infrastructure financing and may support ongoing and future infrastructure projects, particularly where large project groups require significant financing support.

Conclusion

The amendments send a clear regulatory message. The RBI expects NBFCs to monitor their asset size more closely, and it expects Government-owned NBFCs to operate under a stringent regulatory regime. As the NBFC sector grows in size and systemic relevance, the RBI will likely further tighten its regulatory oversight over NBFCs, irrespective of whether they are privately held or Government-owned. At the same time, by increasing the group exposure limit for Upper Layer NBFC-IFCs, the RBI has sought to preserve financing flexibility for infrastructure projects and support the continued growth of India’s infrastructure sector.

This Prism has been prepared by:

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