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RBI to Tighten Oversight of NBFCs in FY26: What You Need to Know

  • 11-Jul-2025
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RBI to Tighten Oversight of NBFCs in FY26: What You Need to Know

The Reserve Bank of India (RBI) is set to enhance regulatory scrutiny over Non-Banking Financial Companies (NBFCs) in the upcoming financial year, FY26. The focus will primarily be on base layer NBFCs, which form the largest segment of the sector. This move is part of the RBI’s broader initiative to strengthen governance, ensure customer protection, and minimize systemic risks in the financial ecosystem.

Base Layer NBFCs Under the Regulatory Spotlight

Out of 9,291 NBFCs currently operating in India, over 8,700 belong to the base layer—typically smaller institutions with lower risk profiles but wide market reach. These NBFCs are now expected to operate under tighter supervisory protocols.

Key measures likely to be introduced include:

  • Increased frequency of regulatory reporting, moving beyond the current annual or biannual submissions.

  • Stricter underwriting practices and enhanced standards for loan disbursement.

  • Mandatory appointment of qualified Chief Risk Officers (CROs) to oversee internal risk frameworks.

  • Higher compliance standards in customer service, governance, and internal controls.

High-Risk NBFCs to Face Stricter Action

NBFCs that display certain warning signs will attract greater regulatory attention. These red flags include:

  • Charging excessively high interest rates

  • Rapid portfolio turnover or unusually fast credit growth

  • A surge in customer complaints or disputes

  • Instances of fraud or operational irregularities

Such entities will be subject to intensified oversight under the RBI’s evolving risk-based supervision model.

A Shift to Risk-Based Supervision (RBS)

The RBI’s transition to risk-based supervision aims to tailor regulatory oversight according to the risk profile of each NBFC. Companies identified as higher-risk will be required to engage more closely with the regulator, including more frequent data submissions and discussions around credit practices, financial health, and governance.

This proactive model is designed to detect and mitigate risks early, improving overall sector resilience.

Why the Change Matters

The NBFC sector has experienced rapid growth, but also faced notable challenges in recent years, including liquidity crises and governance lapses. The RBI’s new supervisory approach is a clear signal that growth must be matched with responsibility.

For borrowers, these reforms are expected to bring greater transparency, improved service standards, and fairer lending practices. For NBFCs, particularly those in the base layer, it represents a call to upgrade risk management systems, improve compliance, and strengthen governance structures.

Preparing for the Future

NBFCs must begin preparing now to meet the elevated expectations of the regulator. Robust compliance mechanisms, enhanced internal audits, and a commitment to ethical lending will be key to navigating the changes ahead.

The message from the RBI is straightforward: operational discipline, transparency, and customer-centric governance are non-negotiable. Institutions that align with these priorities will be better positioned for long-term success.

Stay ahead of regulatory shifts. For expert guidance on NBFC compliance, risk management, or governance frameworks, connect with our advisory team today.

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