Non-Banking Financial Companies (NBFCs) in India are now regulated under RBI's Scale-Based Regulation (SBR) framework, which replaced the older, largely uniform NBFC regulatory approach with a tiered structure — Base Layer, Middle Layer, Upper Layer, and (reserved for systemically important entities) a Top Layer. The layer an NBFC falls into determines its capital requirements, governance obligations, and reporting intensity, and it's a classification that can shift as the NBFC grows, which makes this a live compliance planning question, not a one-time registration exercise.
Registration Basics
To register as an NBFC, an entity needs:
- A minimum Net Owned Fund (NOF) as prescribed (currently ₹10 crore for most NBFC categories, with specific categories carrying different thresholds)
- Incorporation as a company under the Companies Act
- At least one director with relevant financial sector experience
- A clean, demonstrable source of funds for the NOF, since RBI scrutinizes the source and genuineness of promoter capital closely during the Certificate of Registration (CoR) application
- A viable business plan specific to the NBFC category being sought — investment and credit company, infrastructure finance, microfinance, housing finance, etc., each with its own specific conditions
The Four Layers, Broadly
Base Layer (BL) — non-deposit-taking NBFCs below specified asset size thresholds, with the lightest regulatory touch, though even here, basic governance, fair practices, and reporting requirements apply.
Middle Layer (ML) — larger non-deposit-taking NBFCs and all deposit-taking NBFCs, regardless of size, carrying enhanced governance requirements including a more structured board committee framework and tighter provisioning norms.
Upper Layer (UL) — NBFCs identified by RBI based on a scoring methodology (size, interconnectedness, complexity) as warranting bank-like regulatory intensity — including a mandatory listing requirement within a specified timeframe of being identified as Upper Layer, differential provisioning, and more intensive supervisory reporting.
Top Layer — currently reserved, populated only if RBI assesses that Upper Layer NBFCs have grown to a systemic risk level warranting the most intensive regulation.
Compliance Roadmap by Layer
For Base Layer NBFCs:
- Board-approved fair practices code and grievance redressal mechanism
- Basic prudential norms — capital adequacy, asset classification, provisioning
- Annual filings with RBI (returns specific to NBFC category) alongside standard ROC filings, managed as part of ongoing corporate secretarial and regulatory compliance
For Middle Layer NBFCs:
- Enhanced board composition requirements, including specified independent director representation
- More frequent and detailed regulatory reporting (including on liquidity risk management, given post-2018 NBFC liquidity stress episodes that prompted tighter norms)
- Internal audit function with a defined scope aligned to RBI's expectations — a genuine internal audit and due diligence function, not a light-touch annual review
For Upper Layer NBFCs:
- Mandatory listing within the prescribed period of being notified as Upper Layer
- Differential and generally more conservative provisioning norms
- Enhanced disclosure requirements akin to listed financial institutions
- More intensive on-site and off-site supervision by RBI
Practical Compliance Considerations
- Monitor which layer you're approaching, not just which layer you're currently in. Since layer classification is based on asset size and other scoring parameters that change as the business grows, NBFCs need to track their trajectory against these thresholds well before RBI's periodic notification, so governance upgrades (board composition, internal audit scope) aren't scrambled together after being notified.
- NOF maintenance is an ongoing obligation, not a one-time registration hurdle — capital erosion from losses can put an NBFC below its required NOF, triggering regulatory action, so this needs regular monitoring as part of routine accounting and compliance.
- Fit-and-proper criteria apply on an ongoing basis to directors and key managerial personnel, not just at the CoR application stage — a change in directorship needs to be assessed against these criteria before appointment, not after.
Where NBFC Compliance Commonly Slips
- Treating scale-based regulation as a one-time classification rather than a dynamic status that needs monitoring
- Underestimating the governance uplift required when crossing from Base to Middle Layer, particularly around board committees and internal audit scope
- Delayed regulatory reporting, which draws disproportionate supervisory attention relative to the substance of the delay, since RBI treats reporting discipline as a proxy for overall governance health
NBFC registration itself is a defined, if rigorous, process — the harder ongoing work is tracking which regulatory layer the business sits in as it scales, and building governance capacity ahead of that reclassification rather than reacting to it after RBI notification.
Perfect Accounting supports NBFC registration, RBI compliance reporting, and governance readiness reviews as businesses move across the Base, Middle, and Upper Layer thresholds.