RBI introduced the Scale-Based Regulatory (SBR) framework for NBFCs in October 2021, replacing the earlier asset-size based approach. The framework creates four layers: Base Layer (NBFCs below ₹1,000 crore), Middle Layer (₹1,000-10,000 crore), Upper Layer (above ₹10,000 crore), and Top Layer (systemically important). Each layer has differentiated regulatory requirements including capital adequacy, governance norms, and compliance obligations. This risk-proportionate regulation aims to enhance NBFC resilience while promoting financial inclusion and economic growth.

The Scale-Based Regulatory framework represents RBI's shift from a one-size-fits-all approach to differentiated regulation based on NBFC size, activity, and perceived risk. Unlike banks, NBFCs had minimal regulatory differentiation despite their diverse business models ranging from microfinance to housing finance. The SBR framework addresses this by creating regulatory layers with progressively stringent norms. Base Layer NBFCs enjoy regulatory flexibility to support last-mile financial inclusion, while Upper Layer NBFCs face bank-like regulations including large exposure norms and risk management requirements. The Top Layer, currently empty, is reserved for NBFCs posing systemic risk. This framework balances financial stability concerns with the need to preserve NBFCs' agility in serving underbanked segments. Key regulatory differentiators include capital adequacy ratios, governance structures, concentration limits, and liquidity risk management. The framework also introduces the concept of 'Core Investment Companies' and tightens regulations on NBFCs accepting public deposits. This regulatory evolution reflects RBI's learnings from the 2018 NBFC crisis and aligns with global best practices of proportionate regulation.