Regulatory oversight of non-banking finance companies may be set for changes as the central bank begins a review of its existing framework. The move reflects growing concerns around how the sector has expanded and how its role within India’s broader lending system has evolved over time.
The central bank has started examining its Scale Based Regulation framework for non-banking finance companies amid rising risk concentration governance issues and potential implications for financial stability. NBFCs have become a key source of credit outside the traditional banking system which has increased their systemic relevance and brought sharper focus on how they are regulated.
Introduced in 2021 the Scale Based Regulation framework categorises NBFCs into different regulatory layers based on size nature of operations risk exposure and overall systemic importance. Smaller entities operate under relatively lighter norms while larger and more complex NBFCs face tighter regulatory standards designed to manage higher risks.
The ongoing review aims to assess whether these classifications and safeguards remain adequate in view of the sector’s rapid growth and changing business models. The central bank is evaluating if the current structure can continue to address emerging risks while ensuring stability across the non-banking lending ecosystem.
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