RBI extended Basel III capital adequacy norms to NBFCs in 2021 through phased implementation. NBFCs with asset size above ₹1000 crore must maintain Capital to Risk-weighted Assets Ratio (CRAR) of minimum 15%, higher than banks' 11.5%. Tier 1 capital requirement set at 10%. Implementation began April 2022 for large NBFCs, extending to smaller ones by 2025. Additional capital conservation buffer of 2.5% mandated. Risk weights assigned based on asset quality, with higher provisioning for stressed assets. Systemically important NBFCs face enhanced supervision.

Basel norms for NBFCs represent RBI's effort to strengthen India's shadow banking sector after IL&FS crisis exposed systemic risks. Unlike banks, NBFCs traditionally operated with lighter regulation despite similar functions. The new framework introduces risk-based capital requirements where NBFCs must hold capital proportionate to their risk exposure. Higher CRAR requirement (15% vs banks' 11.5%) reflects NBFCs' limited deposit base and higher funding costs. The phased implementation considers sector diversity - from gold loan companies to infrastructure financiers. Risk weights vary: sovereign exposures get 0% weight, corporate loans 100%, while NPAs attract higher weights. This creates incentives for prudent lending. Capital conservation buffer ensures NBFCs maintain capital above minimum during stress. The framework also introduces leverage ratio and liquidity coverage ratio for large NBFCs, making them quasi-banks in regulatory treatment. This convergence aims to create level playing field while recognizing NBFCs' unique business models and funding constraints.