RBI Reviews Scale-Based Rules as NBFCs’ Systemic Role Grows

The Reserve Bank of India has initiated a review of its scale-based regulatory framework for non-banking financial companies (NBFCs), acknowledging their growing importance in India’s financial ecosystem and the potential risks that come with increased size and interconnectedness.

The move reflects how NBFCs have evolved from niche lenders into systemically significant institutions that play a critical role in credit delivery, especially to retail borrowers, MSMEs and underserved segments.

Why Scale-Based Regulation Is Under Review

India introduced scale-based regulation to classify NBFCs according to size, complexity and risk exposure. Larger entities face tighter norms, while smaller ones operate under relatively lighter supervision.

However, regulators believe the framework now needs reassessment as several NBFCs have expanded rapidly, increased market linkages with banks, and taken on more complex balance sheets. This growth has amplified their impact on financial stability.

Rising Systemic Importance of NBFCs

NBFCs today account for a substantial share of retail and MSME credit, often complementing traditional banks. Their agility, digital reach and specialised lending models have accelerated financial inclusion-but have also increased systemic exposure.

A disruption in a large NBFC can quickly transmit stress across the broader financial system, prompting regulators to ensure that oversight keeps pace with scale and risk.

Focus on Governance and Risk Controls

Experts say the RBI’s review will likely focus on capital adequacy, liquidity buffers, governance standards and interconnected exposures. Strong internal controls and transparent financial reporting will be key areas of scrutiny.

In this context, structured financial reviews aligned with auditing services in india play an important role in helping NBFCs strengthen compliance, improve risk visibility and maintain regulatory confidence as norms evolve.

What This Means for the Sector

While tighter rules could increase compliance costs for larger NBFCs, analysts believe the review will ultimately support long-term stability and investor trust. Smaller NBFCs may also benefit from clearer thresholds and a more predictable regulatory environment.

The RBI’s move signals a proactive approach-aimed not at curbing growth, but at ensuring that expansion happens within a robust and resilient regulatory framework.