Assets held by upper layer non-banking financial companies (NBFCs) could surge from 30 per cent to nearly 70 per cent of the sector’s total — if the Reserve Bank of India’s (RBI) proposed changes to the scale-based regulatory (SBR) framework are implemented, according to CareEdge Ratings.
This is because the number of NBFCs in the upper layer may increase from 15 to 19, with the inclusion of government-backed NBFCs.
The RBI has issued draft amendments to the SBR framework, proposing a simplified and ownership-neutral approach to identify NBFCs in the upper layer. The changes introduce a single asset-size threshold of ₹1 trillion, replacing the current two-pronged methodology that combines asset size with a parametric scoring model. The draft also proposes to include government-owned NBFCs within the upper layer category.
Under the draft guidelines, the asset-size threshold for identifying upper layer NBFCs will be reviewed every five years. Exposures backed by state government guarantees will continue to carry a 20 per cent risk weight, with such exposures shifting to the state government without any cap.
Introduced on October 1, 2022, the SBR framework categorises NBFCs into four layers — Base, Middle, Upper and Top — based on size, interconnectedness and complexity. While the top layer is intended to remain largely vacant, upper layer entities are subject to stricter regulatory oversight given their systemic importance.
According to Sanjay Agarwal, Senior Director, CareEdge, “RBI’s draft amendments to the framework for classification of NBFCs into the upper layer, which entails relatively stricter regulatory and supervisory oversight, are a significant step towards rationalising and simplifying the identification criteria. The proposed changes are also expected to materially expand the asset coverage under the upper layer, thereby strengthening systemic oversight and enhancing regulatory clarity for market participants.”
“Under the draft framework,” he added, “NBFCs are estimated to account for approximately 70 per cent of the total NBFC sector assets as of September 2025, more than double the asset coverage under the extant regulatory framework.”
However, the agency flagged the need for greater clarity on certain aspects. It remains unclear whether the asset threshold will include off-balance-sheet exposures and pass-through certificates, and whether it will be assessed on a standalone or consolidated basis, Agarwal said.
NBFCs currently have the flexibility to undertake loan sell-downs or securitisation transactions, which could be used as short-term measures to remain below the threshold.