RBI to Tighten Supervisory Norms for NBFCs in FY26: What It Means for the Sector
The Reserve Bank of India (RBI) is preparing to introduce stricter supervisory regulations for Non-Banking Financial Companies (NBFCs) in the financial year 2025–26, with a primary focus on those categorized under the base layer. This development is part of the central bank’s broader agenda to enhance regulatory oversight, promote responsible lending, and safeguard borrower interests.
Base Layer NBFCs Under Closer Watch
Of the 9,291 registered NBFCs in India, more than 8,700 fall under the base layer—smaller institutions with limited public interest but significant customer reach. Despite their size, these NBFCs handle vast portfolios and play a critical role in extending credit to underserved segments.
Under the expected revised framework, the RBI is likely to mandate:
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More frequent reporting, moving beyond the current biannual submission system.
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Improved underwriting standards and enhanced credit appraisal processes.
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Appointment of qualified Chief Risk Officers (CROs) to oversee risk management practices.
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Tighter norms around customer service, compliance, and corporate governance.
Targeted Scrutiny for High-Risk Practices
NBFCs demonstrating any of the following traits are expected to come under increased regulatory scrutiny:
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Charging excessive interest rates
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Rapid portfolio turnover or aggressive business expansion
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A rise in customer grievances or complaints
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Reported cases of fraud, mismanagement, or operational lapses
These red flags will trigger deeper inspections and a closer relationship with the regulator under the proposed risk-based supervision (RBS) model.
Transition to a Risk-Based Supervision Model
The RBI's move towards a risk-based supervisory framework for NBFCs represents a significant shift. Under this model, companies identified as higher-risk will be required to engage more proactively with the regulator. This includes increased monitoring of business conduct, credit trends, and operational practices.
The objective is not only to ensure timely corrective actions but also to promote early detection of financial or governance risks that could compromise borrower safety or market stability.
Why This Matters
Over the past few years, the NBFC sector has witnessed both growth and turbulence, including liquidity challenges and governance concerns. By tightening regulations—especially at the base layer—the RBI is aiming to strengthen systemic resilience and protect the interests of borrowers.
For borrowers, this change is likely to result in more transparent practices, better grievance redressal, and responsible lending. For NBFCs, especially smaller players, it signals the need to upgrade internal systems, adopt best governance standards, and enhance regulatory compliance.
Preparing for the Road Ahead
As regulatory expectations evolve, NBFCs must begin preparing for heightened scrutiny and greater accountability. Ensuring strong internal controls, transparent risk management, and robust governance frameworks will be essential for business continuity and growth.
The RBI’s approach is clear: sustainable growth must be backed by sound governance and operational discipline. For the sector to thrive, NBFCs must rise to meet these higher standards.
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