RBI Upper Layer NBFC Rules 2026, ₹1 Lakh Crore Threshold, Mandatory Listing and Compliance 

Introduction: The Upper Layer Has Become a Strategic Regulatory Category

The Reserve Bank of India’s Scale Based Regulation (“SBR”) framework has fundamentally changed the way India regulates its largest non-banking financial companies (“NBFCs”). What began in 2021 as a framework built around size, complexity, interconnectedness and systemic importance has evolved into a substantially more predictable regime following the RBI’s June 2026 amendments. As of 10 August 2026, the most significant change is that the identification of an NBFC in the Upper Layer (“NBFC-UL”) is now based on an asset-size threshold of ₹1,00,000 crore and above, as per the latest audited balance sheet for the financial year, with the RBI undertaking the identification annually. 

The consequences of being placed in the Upper Layer extend well beyond prudential regulation. An NBFC-UL is subject to enhanced governance, capital, risk-management, disclosure and supervisory requirements and, subject to the specific exemption applicable to NBFC-ULs that are fully owned and controlled by the Government, a mandatory requirement to list its equity shares within three years of identification by the RBI. The regulatory architecture therefore makes the Upper Layer not merely a prudential classification but also a potential capital-markets event, with implications for promoters, shareholders, lenders, boards and management. 

At the same time, an important distinction needs to be made between “public funds” and “public deposits”. Public funds are significantly broader than deposits and include several institutional sources of financing, while the mandatory listing requirement is not triggered simply because an NBFC accesses public funds; under the current framework, the Upper Layer identification criterion is the prescribed asset-size threshold. 

From Scale-Based Regulation to a Bright-Line Upper Layer Test

The RBI introduced SBR in October 2021 to move away from a largely uniform regulatory model and instead calibrate regulation according to the size, activity and systemic importance of an NBFC. The framework created four layers: Base Layer (“NBFC-BL”), Middle Layer (“NBFC-ML”), Upper Layer (“NBFC-UL”) and Top Layer (“NBFC-TL”), with progressively stronger regulatory requirements applying as an entity moves upward. The Top Layer was designed to remain empty unless the RBI considered a particular NBFC to pose substantial additional systemic risk. 

Under the earlier framework, the Upper Layer was identified through a combination of quantitative and qualitative parameters, with the ten largest eligible NBFCs by asset size automatically occupying the Upper Layer. This methodology was intended to capture systemic risk arising not merely from balance-sheet size but also from leverage, interconnectedness and other characteristics. However, the approach also meant that an NBFC could find it difficult to predict with certainty whether it would enter the Upper Layer in a future annual review. 

The RBI’s Reserve Bank of India (Non-Banking Financial Companies – Registration, Exemptions and Framework for Scale Based Regulation) Second Amendment Directions, 2026, issued on 24 June 2026, substantially simplified this framework. The earlier identification methodology was replaced with an objective asset-size criterion under which the Upper Layer consists of NBFCs having an asset size of ₹1,00,000 crore and above, based on the latest audited balance sheet for the financial year, with the RBI specifically identifying NBFCs in the Upper Layer annually. The asset-size threshold is to be reviewed every three years. 

The amendment also brought Government-owned NBFCs within the framework for placement in the various regulatory layers. This represents a significant shift towards applying the SBR framework on the basis of the regulatory characteristics and scale of the NBFC rather than treating Government ownership, by itself, as a basis for exclusion from the Upper Layer. 

What Exactly Are “Public Funds”?

One of the most important concepts in the RBI’s NBFC framework is “public funds”. The term is deliberately broader than “public deposits” and covers specified forms of funding obtained directly or indirectly from external sources. 

Under the SBR framework, public funds include funds raised directly or indirectly through public deposits, inter-corporate deposits, bank finance and funds raised from outside sources through instruments such as commercial paper and debentures. The framework also contains an exclusion for instruments that are compulsorily convertible into equity shares within five years from their date of issue. 

The concept also recognises indirect access to public funds. Funds received through associates or group entities that themselves have access to public funds may be relevant when determining whether an NBFC is indirectly receiving public funds. This is an important consideration for corporate groups that operate multiple financing entities or use holding-company structures for treasury and funding activities. 

Public Funds Are Not the Same as the Upper Layer Test

A critical practical point is that access to public funds does not, by itself, make an NBFC an NBFC-UL. Public funds remain an important concept within the SBR architecture because they determine the regulatory treatment of certain NBFCs, particularly in the context of entities that do not avail public funds and do not have customer interface. However, following the June 2026 amendments, the current identification criterion for the Upper Layer is the ₹1,00,000 crore asset-size threshold, with the RBI undertaking identification annually. 

This distinction has significant consequences for regulatory analysis. A smaller NBFC may access bank finance and other forms of public funds without being identified as an NBFC-UL, while an NBFC meeting the applicable ₹1,00,000 crore asset-size criterion may be identified in the Upper Layer regardless of whether its funding model is predominantly deposits, bank finance, debt securities or other permitted sources. The question of public funds therefore remains relevant to the broader regulatory framework, but it should not be confused with the current Upper Layer identification criterion. 

The practical lesson is that an NBFC should maintain two separate regulatory maps: one tracking the sources and character of its funding, and another tracking its asset size and potential exposure to Upper Layer identification. Conflating these two tests can lead to incorrect conclusions about both regulatory obligations and the timing of a potential listing. 

The ₹1 Lakh Crore Threshold: Why It Matters

The new threshold creates a relatively straightforward early-warning mechanism for boards and management. An NBFC with audited assets approaching ₹1 lakh crore should no longer treat Upper Layer identification as a remote regulatory possibility based on qualitative scoring; instead, it can identify the potential trigger through its own balance-sheet trajectory. The three-year review cycle also provides greater visibility than the earlier methodology. 

The test is based on the latest audited balance sheet for the financial year, while identification in the Upper Layer is undertaken annually by the RBI. Companies approaching the threshold should therefore consider their projected asset position well before the annual identification exercise rather than waiting for an RBI announcement. The objective should be to create sufficient lead time for governance, capital-market, accounting, disclosure, shareholder-readiness and other compliance work. 

The June 2026 reform also removed the earlier relative-ranking methodology for identification. This means that the regulatory analysis is now substantially more transparent because an NBFC does not have to assess its position against the balance sheets and relative rankings of other NBFCs in the same manner as under the earlier framework. The move towards an objective asset-size criterion is likely to make regulatory planning significantly easier for large NBFCs and their advisers. 

What Happens When an NBFC Enters the Upper Layer?

Once identified as an NBFC-UL, the entity becomes subject to a heightened regulatory regime. The SBR framework operates on a progressive basis, meaning regulatory requirements applicable to lower layers generally continue to apply to higher layers unless specifically provided otherwise. In addition, NBFC-ULs are subject to enhanced capital, governance, risk-management, exposure and disclosure requirements. 

Capital requirements are one important dimension of this enhanced framework. NBFC-ULs are subject to enhanced capital requirements, including a minimum Common Equity Tier 1 (“CET1”) capital requirement of 9% of aggregate risk-weighted assets, subject to the applicable regulatory provisions and exclusions. This is not merely a capital adequacy exercise; boards should view the potential impact on distributable capital, leverage, fundraising capacity and future growth as part of the strategic implications of Upper Layer identification. 

Governance requirements are similarly enhanced. The RBI’s Governance Directions impose additional requirements concerning board composition, committees, risk management, compliance functions, senior management and other governance matters, with enhanced requirements applying to NBFCs in the Upper Layer. The regulatory expectation is therefore that an NBFC-UL should maintain governance systems commensurate with its scale and enhanced regulatory position. 

The Mandatory Listing Requirement

The most commercially consequential consequence for an unlisted NBFC-UL is the mandatory listing requirement. The RBI’s Non-Banking Financial Companies – Governance Directions, 2025 provide that an NBFC-UL must be listed within three years of its identification by the RBI as an entity in the Upper Layer. The same provision also requires the NBFC to put in place disclosure requirements on the same lines as those applicable to a listed company even before the actual listing, pursuant to a board-approved policy. 

However, this requirement is subject to an important amendment introduced in June 2026. The RBI has specifically provided that the relevant provisions of paragraph 43 do not apply to an NBFC-UL that is fully owned and controlled by the Government. Accordingly, the exemption should not be treated as applying to every NBFC in which the Government has a shareholding; the precise ownership and control structure must be examined. 

This means that the three-year period should not be treated as a three-year period before anything needs to happen. The legal deadline may be three years, but the practical preparation period is considerably shorter because an IPO or other listing transaction involves corporate restructuring, financial diligence, legal diligence, accounting readiness, governance changes, offer-document preparation, regulatory engagement, shareholder approvals and extensive coordination with intermediaries An NBFC identified as an NBFC-UL should therefore begin its listing-readiness exercise substantially in advance of the formal deadline. 

The mandatory listing requirement also changes the nature of the board’s strategic discussion. The question is no longer simply whether the company should access public capital markets, but how it should prepare for a regulatory requirement that may result in public shareholding, continuing disclosure obligations and greater scrutiny of related-party transactions, governance, financial performance and material events. In this sense, the RBI listing requirement can also be viewed as introducing greater market discipline through enhanced transparency and shareholder scrutiny. 

Listing Is Not the Same as Raising Capital

A particularly important distinction is that listing and fundraising are related but legally distinct concepts. A company may pursue an IPO involving a fresh issue, an offer for sale, or a combination of the two, depending on its circumstances and applicable securities-law requirements. The RBI requirement, however, is fundamentally a requirement for the equity shares of the NBFC-UL to be listed, while the capital-raising structure must be designed within the Companies Act, 2013, the Securities Contracts (Regulation) Rules, 1957 (“SCRR”) and the applicable SEBI framework. 

For an unlisted NBFC-UL, an initial public offering may be the most practical route to achieving an equity listing. However, the appropriate transaction structure will depend upon promoter objectives, existing shareholding, valuation, capital requirements, investor appetite, regulatory constraints and the company’s desired post-listing ownership structure. 

This distinction becomes particularly important where the shareholders do not require additional capital. An NBFC may have substantial internal capital and no immediate funding requirement, but the RBI listing requirement can nevertheless necessitate a transaction that creates public shareholding and ongoing listed-company obligations. The strategic question therefore becomes how to achieve regulatory compliance while minimising unnecessary dilution and maximising the long-term value of becoming a listed financial institution. 

Interaction with the Companies Act and SEBI Framework

Once an NBFC prepares for an equity listing, RBI regulation is only one part of the legal architecture. The company must also navigate the Companies Act, 2013, the Securities Contracts (Regulation) Act, 1956 (“SCRA”), the SCRR, and the SEBI regulatory framework governing public issues and listed entities. The SEBI (Issue of Capital and Disclosure Requirements) Regulations, 2018 govern the issue-side framework, while the SEBI (Listing Obligations and Disclosure Requirements) Regulations, 2015 govern continuing obligations after listing. As at 10 August 2026, the ICDR Regulations were last amended on 21 March 2026 and the LODR Regulations were last amended on 14 July 2026. 

The minimum public shareholding framework is also relevant. Rule 19A of the SCRR generally requires a listed company, other than a public-sector company, to maintain at least 25% public shareholding, subject to the specific provisions, exceptions and transitional arrangements under the applicable securities-law framework. Accordingly, an NBFC considering how to structure its mandatory listing must assess not merely how to get listed but also how the resulting shareholding will comply with continuing minimum public shareholding requirements. 

The post-listing regulatory burden is substantial. Once listed, the NBFC becomes subject to continuous disclosure, corporate governance, related-party transaction, financial-result, material-event, insider-trading and other requirements under the SEBI framework, in addition to its continuing RBI obligations. The result is a dual-regulator environment in which the company must ensure that RBI and SEBI compliance systems operate together rather than as separate silos. 

Disclosure Obligations Begin Before the IPO

One of the most strategically important features of the RBI framework is that an unlisted NBFC-UL cannot simply wait until the IPO to adopt listed-company standards of disclosure. The applicable RBI Governance Directions require disclosure requirements to be put in place on the same lines as those applicable to a listed company even before the actual listing, in accordance with a board-approved policy. 

This creates an important “pre-listing listed-company” phase. During this period, management should establish systems for identifying material information, board-level disclosure controls, financial reporting calendars, related-party monitoring, insider-information controls and escalation procedures. The company should also test whether information currently available to management can be converted into timely, consistent and auditable disclosures suitable for a public shareholder base. 

In practice, this may be one of the more demanding aspects of the RBI mandate. An NBFC can theoretically complete an IPO within the three-year window, but creating a credible disclosure architecture requires behavioural and organisational change across finance, legal, compliance, risk, business and senior management functions. Listing readiness should therefore be treated as a corporate transformation programme, rather than merely as an equity transaction. 

Government-Owned NBFCs: A Significant 2026 Change

The June 2026 amendments introduced a significant change by allowing Government-owned NBFCs to be included in the Upper Layer. This reflects an approach under which the SBR framework can apply to Government-owned entities based on their regulatory layer and systemic characteristics, rather than Government ownership automatically excluding them from the Upper Layer. 

However, the RBI simultaneously introduced a specific exemption from the mandatory listing requirement for NBFC-UL entities that are fully owned and controlled by the Government. The exemption is therefore narrower than a general exemption for all Government-owned NBFCs and should not automatically be assumed to apply to an entity merely because the Government has a majority shareholding or exercises some degree of control. 

The June 2026 amendments also altered the prudential treatment of Government-owned NBFCs by withdrawing specified exemptions from applicable concentration-risk norms. Government-owned NBFCs are consequently required to comply with the applicable concentration limits under the amended framework, subject to the relevant provisions and transition arrangements. 

This creates an important legal distinction for Government-linked financial institutions. The classification question and the listing question must now be analysed separately, and the precise ownership and control structure should be examined before determining whether the listing exemption applies. 

Additional Considerations for NBFCs Within Bank Groups

The June 2026 amendments also address NBFCs that are group entities of Scheduled Commercial Banks. Where the parent bank and the NBFC undertake similar financial activities, the NBFC is required to comply with applicable provisions of the RBI framework governing commercial banks’ undertaking of financial services, while continuing to retain its classification under the applicable SBR layer. 

For such NBFCs, the regulatory analysis should therefore not stop at determining the applicable SBR layer. The group structure and the nature of activities undertaken by the parent bank and NBFC should also be reviewed to determine whether additional banking-sector requirements become applicable. 

Infrastructure Finance Companies and Other Upper Layer NBFCs

The Upper Layer framework is not limited to conventional lending NBFCs. Depending on the applicable regulatory framework, NBFC-ICCs, HFCs, CICs, Infrastructure Finance Companies and other eligible NBFC categories can fall within the Upper Layer. The June 2026 amendments consequently have implications across a broad spectrum of financial institutions rather than merely for consumer-finance or retail-lending businesses. 

The amendments also modified certain exposure norms applicable to Upper Layer Infrastructure Finance Companies. In particular, the group counterparty exposure limit for an Upper Layer IFC has been increased from 35% to 45% of its eligible capital base. These changes demonstrate that the June 2026 package was not solely about listing; it was a broader recalibration of the regulatory architecture applicable to the largest NBFCs. 

For boards, this means that a regulatory transition to the Upper Layer should be assessed across the entire balance sheet. Capital, concentration limits, governance, disclosure, funding, business-model restrictions and listing requirements should be considered together because decisions taken in one area can materially affect compliance in another. 

What Should an NBFC Do If It Is Approaching ₹1 Lakh Crore?

The first step should be a regulatory threshold assessment. Management should map current audited assets, projected year-end assets, business growth assumptions and the timing of the RBI’s annual identification exercise. The exercise should be refreshed at regular intervals rather than conducted only once a year because rapid balance-sheet growth can materially shorten the available preparation window. 

The second step should be a listing-readiness diagnostic. This should examine share capital, promoter holdings, corporate structure, subsidiaries, historical financial statements, related-party transactions, litigation, regulatory compliance, governance arrangements, employee matters, intellectual property, material contracts and other matters that would ordinarily form part of IPO due diligence. The purpose is to identify issues while there is still time to remediate them rather than allowing them to become transaction blockers. 

The third step should be a board-approved transition roadmap. The roadmap should establish responsibility for regulatory engagement, corporate restructuring, financial reporting, governance changes, legal diligence, SEBI readiness, intermediary selection, disclosure controls and transaction execution. A well-designed roadmap should work backwards from the three-year RBI deadline while targeting an earlier operational readiness date. 

A Practical Compliance Roadmap

Phase I: Regulatory Assessment

The company should first determine whether it is likely to meet the ₹1 lakh crore asset-size criterion for identification as an NBFC-UL. It should separately identify its sources of public funds and determine whether any group-level funding arrangements create indirect receipt of public funds. The outcome should be documented in a board-level regulatory assessment so that the company has a clear audit trail of the analysis. 

Phase II: Governance and Disclosure Readiness

The next phase should focus on the enhanced governance requirements applicable to an NBFC-UL. The company should review board composition, independent directors, board committees, risk management, compliance functions, senior management structures and disclosure controls. The pre-listing disclosure framework required by RBI should be implemented rather than deferred until the IPO process formally begins. 

Phase III: Capital Markets Readiness

The company should then assess the appropriate listing structure, including the quantum and form of any fresh issue or offer for sale. It should evaluate promoter dilution, minimum public shareholding, valuation considerations, capital requirements and investor positioning within the SEBI framework. The ICDR and LODR requirements should be mapped alongside RBI requirements from the beginning rather than treated as a separate workstream at a later stage. 

Phase IV: Transaction Execution

The final phase involves appointment of advisers and intermediaries, legal and financial diligence, preparation of offer documents, corporate approvals, regulatory engagement, marketing and the listing process. The transaction should be structured to achieve RBI compliance while also producing a sustainable listed-company governance framework. This is particularly important because the regulatory deadline ends with listing, but the company’s compliance obligations continue indefinitely after listing. 

The Strategic Question: Is Listing a Burden or an Opportunity?

For many privately held NBFCs, mandatory listing may initially appear to be a regulatory burden. It can introduce dilution, public scrutiny, continuing disclosure obligations and greater scrutiny of management decisions, related-party arrangements and financial performance. Yet the same requirements can create significant strategic benefits, including enhanced access to capital, greater institutional visibility, improved governance credibility and potentially a broader valuation framework. 

The more important question is therefore whether the NBFC approaches listing as a compliance event or an institutional transformation. An entity that begins preparing only shortly before the deadline is likely to experience listing as an expensive and disruptive regulatory exercise. An entity that begins early can use the process to institutionalise governance, strengthen financial reporting, professionalise disclosure systems and create a more scalable capital structure. 

This is particularly relevant in India’s rapidly expanding NBFC sector. As balance sheets grow and financial intermediation becomes increasingly sophisticated, the distinction between a privately held financial company and a systemically significant market institution becomes less meaningful. RBI’s Upper Layer framework effectively recognises that distinction and seeks to bring the largest NBFCs within a framework of enhanced regulation, transparency and supervisory oversight. 

Key Takeaways for Boards and Promoters

The first takeaway is that ₹1 lakh crore is now the critical asset-size threshold for Upper Layer identification. Large NBFCs should build this threshold into strategic planning, financial projections and regulatory monitoring rather than treating it as an issue that arises only after an RBI identification exercise. 

The second takeaway is that public funds and public deposits must not be conflated. Public funds include specified forms of bank finance, inter-corporate deposits, commercial paper, debentures and other qualifying external funding, but access to public funds is not itself the current criterion for NBFC-UL identification. 

The third takeaway is that mandatory listing is a three-year regulatory deadline, not a three-year preparation window. Once an NBFC is identified as NBFC-UL, the company should already have a detailed plan covering governance, disclosure, capital structure, diligence, SEBI compliance and transaction execution. This requirement is subject to the specific exemption for NBFC-ULs that are fully owned and controlled by the Government. 

The fourth takeaway is that 2026 has changed the Government-NBFC equation. Government-owned NBFCs can now fall within the Upper Layer, but NBFC-ULs that are fully owned and controlled by the Government are exempt from the specified mandatory-listing provisions. The ownership and control structure must therefore be examined carefully before relying on the exemption. 

The fifth takeaway is that Upper Layer compliance should be approached holistically. Capital requirements, concentration norms, governance, disclosure, funding arrangements, group structures and potential listing requirements should be assessed together because a change in one area can have consequences for another. 

Conclusion: Regulatory Thresholds Are Becoming Strategic Thresholds

The RBI’s June 2026 reforms mark a significant maturation of India’s NBFC regulatory framework. By replacing the earlier identification methodology with an objective ₹1 lakh crore asset-size criterion, the RBI has made Upper Layer identification more predictable while retaining enhanced supervision for the country’s largest non-bank financial institutions. At the same time, the continuation of the mandatory listing requirement for eligible NBFC-ULs means that crossing the regulatory threshold can fundamentally alter an institution’s capital-markets strategy. 

The broader message for NBFC boards is clear: regulatory classification should be treated as a strategic planning issue, not merely a compliance issue. An NBFC approaching the Upper Layer threshold should begin assessing public-funds exposure, capital adequacy, governance, disclosure systems, ownership structure and potential listing routes well before the RBI formally identifies it. Early preparation can convert what might otherwise be a regulatory deadline into an opportunity to build a stronger, more transparent and institutionally resilient financial enterprise. 

For promoters, investors and boards, the most effective approach is therefore to work backwards from the regulatory trigger. The question should not be “When do we have to list?” but rather “What must we change today so that, if we are identified as an NBFC-UL, we can list on our terms while remaining fully compliant with RBI and SEBI requirements?” That shift in perspective is likely to distinguish institutions that merely comply with the Upper Layer regime from those that use it to build lasting capital-market credibility. 

Frequently Asked Questions

Last Updated on 11 August, 2026