2.2 Scale-Based Regulation
Rule summary
Section titled “Rule summary”RBI’s Scale-Based Regulation (SBR) framework, effective from October 2022, classifies NBFCs into four layers — NBFC-BL (Base), NBFC-ML (Middle), NBFC-UL (Upper), NBFC-TL (Top) — and applies progressively stricter prudential, governance, and disclosure norms as an NBFC moves up the ladder.
The framework consolidates older NBFC categories and aligns regulation to size, complexity, and systemic importance.
Source citation
Section titled “Source citation”- RBI Scale-Based Regulation – A Revised Regulatory Framework for NBFCs,
DOR.CRE.REC.No.60/03.10.001/2021-22, dated 22 October 2021. - Consolidated Master Direction — NBFC – Scale Based Regulation Directions, 2023, on
rbi.org.in.
The four layers
Section titled “The four layers”| Layer | Threshold | Examples / population |
|---|---|---|
| Base Layer (NBFC-BL) | Asset size < ₹1,000 Cr and not in higher categories | Most small NBFCs, new entrants |
| Middle Layer (NBFC-ML) | Asset size >= ₹1,000 Cr (deposit-taking, all sizes, automatically) or specific categories (CIC, IFC, IDF, HFC, etc.) | Mid-sized NBFCs |
| Upper Layer (NBFC-UL) | Top 25–30 NBFCs by RBI’s scoring methodology (size + interconnectedness + complexity + supervisory inputs) | Major NBFCs |
| Top Layer (NBFC-TL) | Empty by default; RBI may move NBFC-UL entities here on supervisory concerns | Reserved |
An SME WC NBFC starting today will be in NBFC-BL for years. Reaching NBFC-ML requires ₹1,000 Cr+ book.
What changes by layer
Section titled “What changes by layer”Capital adequacy
Section titled “Capital adequacy”| Layer | CRAR | Tier-1 capital min | Leverage |
|---|---|---|---|
| BL | 15% | Not separately specified for non-deposit | Capped at 7× |
| ML / UL | 15% | Tier-1 min 10% | (No leverage cap once CRAR met) |
| UL (additional) | Differential standard assets provisioning, additional buffer |
Net Owned Fund (NOF) by 2027
Section titled “Net Owned Fund (NOF) by 2027”The phased increase to ₹10 Cr NOF for NBFC-ICC by 2027 is part of SBR. Existing NBFCs with lower NOF must ramp:
- By 31 March 2025:
₹7 Cr - By 31 March 2027:
₹10 Cr
New NBFCs must meet ₹10 Cr at registration.
Concentration limits
Section titled “Concentration limits”For NBFC-BL:
- Single borrower exposure cap:
25%of Tier-1 capital - Group borrower exposure cap:
40%of Tier-1 capital
For NBFC-ML / UL: tighter, with additional sectoral and unsecured caps.
Internal Capital Adequacy Assessment Process (ICAAP)
Section titled “Internal Capital Adequacy Assessment Process (ICAAP)”Mandatory for NBFC-ML and above. Recommended practice for NBFC-BL.
Board composition and governance
Section titled “Board composition and governance”- NBFC-ML / UL: independent directors, board committees (Audit, Risk, Nomination & Remuneration, Stakeholders, CSR), board-approved policies for credit, market risk, ALM, outsourcing, IT.
- NBFC-UL: mandatory listing within
3 yearsof identification.
Disclosure
Section titled “Disclosure”Increasing public disclosure obligations from BL to UL — board composition, related-party transactions, concentration of advances, sectoral exposures, classification of advances, securitisation, capital adequacy.
Risk management
Section titled “Risk management”- Chief Risk Officer (CRO) mandatory for NBFC-ML and above.
- Independent compliance function with Chief Compliance Officer for NBFC-UL.
- Internal Audit function with periodic review.
Asset classification
Section titled “Asset classification”Applies uniformly across layers — see Asset classification, NPA, provisioning.
Layer movement
Section titled “Layer movement”Movement from BL to ML happens automatically when asset size crosses ₹1,000 Cr for two consecutive quarters (or on RBI initiative). Movement to UL is at RBI’s discretion based on the scoring methodology, published annually.
Product implications
Section titled “Product implications”- For NBFC-BL: single-borrower exposure cap of
25% of Tier-1 capital— for an NBFC with₹15 CrTier-1, single-borrower cap is₹3.75 Cr. Critical for SCF programmes with single large anchors. - Pricing must factor in the leverage cap of
7×for BL — book size is bounded by NOF for an NBFC without deposit-taking authority.
System implications
Section titled “System implications”- Borrower exposure tracking — compute single-borrower and group-borrower exposure in real time against Tier-1 capital. Block new sanctions that would breach.
- Sectoral exposure tracking — categorise every loan by sector code, compute sectoral concentration.
- CRAR computation — quarterly, fed by loan book, provisioning, and capital data.
- Leverage ratio computation — daily.
- NOF computation — monthly.
Documents that must be generated
Section titled “Documents that must be generated”- ICAAP report (annual, for ML+).
- Board risk dashboard (quarterly).
- Concentration disclosures in annual report.
Workflow that must exist
Section titled “Workflow that must exist”- Exposure-cap pre-check at sanction.
- Quarterly capital adequacy review with board.
- Trigger to escalate when within
10%of any concentration cap.
Reports that must be produced
Section titled “Reports that must be produced”- Quarterly returns to RBI — DNBS-01 through DNBS-13 depending on category and asset size.
- Asset classification statement monthly.
- Annual return to RBI.
- See Compliance calendar for the full schedule.
Audit evidence required
Section titled “Audit evidence required”- Quarterly CRAR computation with auditor sign-off.
- Concentration cap evidence (system snapshots).
- Board minutes evidencing risk discussion.
Sources
Section titled “Sources”- RBI Scale-Based Regulation,
DOR.CRE.REC.No.60/03.10.001/2021-22, 22 October 2021. - RBI NBFC – Scale Based Regulation Directions, 2023 (consolidated).
- RBI annual list of NBFC-UL identification, published on
rbi.org.in.