RBI Set to Tighten Supervisory Norms for NBFCs in FY26: A Shift Toward Stricter Oversight
The Reserve Bank of India (RBI) is poised to implement tighter supervisory norms for Non-Banking Financial Companies (NBFCs) in FY26, with a particular focus on those categorized in the base layer. This move is seen as part of the central bank’s broader strategy to enhance regulatory oversight, ensure financial stability, and protect borrowers—especially as NBFCs continue to grow in importance within India’s financial ecosystem.
A Closer Eye on Base Layer NBFCs
Out of the 9,291 registered NBFCs in India, over 8,700 fall under the base layer, comprising those with relatively small size and complexity. Despite their scale, these companies collectively handle a vast borrower base, making their stability and practices crucial to consumer confidence and financial inclusion.
Under the expected new norms, the RBI is likely to:
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Increase the frequency of supervisory reporting—moving beyond the current once or twice a year norm.
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Mandate improved internal risk frameworks, including the appointment of qualified Chief Risk Officers.
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Tighten governance, compliance, and customer service benchmarks, ensuring responsible lending and transparent operations.
Red Flags to Attract Stricter Scrutiny
The RBI will particularly monitor NBFCs that display any of the following characteristics:
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High lending rates or predatory pricing models
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Rapid portfolio churn or overly aggressive growth
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Rising customer complaints or poor grievance redressal
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Incidents of fraud or operational misconduct
Such entities may face closer examination under a risk-based supervision model, which will prioritize regulatory engagement based on the risk level of an NBFC’s operations.
The Rise of Risk-Based Supervision
Risk-based supervision (RBS) is not new to the Indian financial sector, but its extended application to NBFCs signals the RBI’s seriousness in preventing systemic shocks. Through RBS, the RBI will classify NBFCs based on their operational risks, and tailor its engagement, audits, and oversight accordingly. This implies more frequent interactions with higher-risk NBFCs and a proactive approach to identifying and mitigating red flags early.
Why This Matters
In recent years, the NBFC sector has been both a growth driver and a point of concern. Events such as liquidity crises and corporate governance lapses have exposed the vulnerabilities of under-supervised entities. Tightening the regulatory net—especially at the base layer—will not only strengthen borrower protections but also safeguard the broader financial system.
For borrowers, this means more responsible lending practices and better customer service. For NBFCs, especially smaller ones, it signals the need to upgrade internal controls, invest in governance, and improve transparency.
Looking Ahead
As the regulatory landscape evolves, NBFCs must adapt quickly or risk penalties, restrictions, or even license cancellation. Building robust internal systems, investing in compliance, and proactively addressing risks will be essential for survival and growth in FY26 and beyond.
The RBI’s message is clear: growth cannot come at the cost of governance. And as NBFCs continue to play a critical role in India’s financial inclusion journey, ensuring their stability will be a top priority for the regulator.
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