NBFC Scale-Based Regulation and Co-Lending: Complete IIBF Guide

NBFC scale-based regulation and co-lending sit at the heart of how the Reserve Bank of India now supervises Non-Banking Financial Companies, and they are essential study material for any IIBF certificate candidate. Since the Scale-Based Regulation (SBR) framework went live on 1 October 2022, NBFCs are no longer treated as one homogeneous group. Instead they are sorted into four regulatory layers, each carrying progressively stricter capital, governance and disclosure norms. Alongside this, co-lending arrangements with banks, peer-to-peer platforms and digital lending rules have reshaped how credit reaches under-served borrowers. This article walks through every moving part you need to master.

Types of NBFCs and why classification matters

An NBFC is a company registered under the Companies Act that lends, invests or provides financial services but does not hold a banking licence and cannot accept demand deposits. The RBI classifies NBFCs along several axes, and understanding these categories is the foundation for everything that follows in the NBFC scale-based regulation framework.

• By liability structure: Deposit-taking NBFCs (NBFC-D) versus Non-deposit-taking NBFCs (NBFC-ND). Larger non-deposit firms above the asset threshold are tagged systemically important (NBFC-ND-SI).
• By activity: Investment and Credit Company (NBFC-ICC), Infrastructure Finance Company (IFC), Infrastructure Debt Fund (IDF), Microfinance Institution (NBFC-MFI), Factor, and Mortgage Guarantee Company.
• By specialised role: Core Investment Companies (CIC), Housing Finance Companies (now regulated by RBI), Account Aggregators, and P2P lending platforms (NBFC-P2P).

Each type faces tailored norms on minimum Net Owned Funds, leverage and permitted business. The 2019 IL&FS and DHFL stress events exposed how a poorly supervised large NBFC can transmit shocks across the financial system, which is precisely why the RBI moved to a layered, risk-proportionate model. Candidates should be able to map any given NBFC to its type before assigning the correct regulatory layer.

The RBI scale-based regulatory framework: Base, Middle, Upper and Top

The SBR framework organises NBFCs into a pyramid of four layers, where the regulatory intensity rises as you move up. This is the single most heavily tested concept in current IIBF papers, so commit the structure to memory.

• Base Layer (NBFC-BL): Non-deposit NBFCs with asset size below Rs 1,000 crore, plus P2P platforms, Account Aggregators and non-operative financial holding companies. Lightest touch. NPA classification moved to a 90-day overdue norm with a glide path.
• Middle Layer (NBFC-ML): All deposit-taking NBFCs irrespective of size, plus non-deposit NBFCs with assets of Rs 1,000 crore and above, and entities such as IFCs, IDFs, CICs and HFCs. Tighter exposure, governance and capital rules apply.
• Upper Layer (NBFC-UL): The top firms identified by the RBI using a scoring methodology, subject to bank-like norms including Common Equity Tier 1 of at least 9 percent, mandatory listing within three years, and differential standard asset provisioning.
• Top Layer (NBFC-TL): Ordinarily empty. The RBI can move an Upper Layer NBFC here if it perceives a substantial increase in systemic risk, attracting the most stringent supervision.

A key exam point: a deposit-taking NBFC always sits in the Middle Layer or higher, never the Base Layer. Test your recall of the layer thresholds with the practice sets on iibf.store mock tests and reinforce the terminology using the match-the-pairs game.

NPA and provisioning norms for NBFCs

Asset classification is where NBFC rules have converged sharply toward banking standards. Under the November 2021 RBI clarifications, NBFCs must recognise a Non-Performing Asset when an account is overdue for more than 90 days, aligning with banks. Smaller Base Layer NBFCs were given a glide path to adopt the 90-day norm in stages.

• Standard asset: No default, serviced on time. Base Layer NBFCs provide 0.25 percent on standard assets; the requirement steps up for higher layers and certain sectors.
• Sub-standard: NPA for up to 12 months, carrying a 10 percent provision on the outstanding.
• Doubtful: NPA beyond 12 months, with provisioning that rises with the age of the doubtful asset and the security cover available.
• Loss asset: Identified as uncollectible; provided for at 100 percent.

Two clarifications are frequently examined. First, an account classified as NPA can be upgraded to Standard only after all arrears of interest and principal are fully paid, not merely after a single instalment. Second, daily or month-end "due date" based recognition must be applied consistently. For Upper Layer NBFCs the RBI additionally prescribes differential standard-asset provisioning and a board-approved policy on income recognition. Keep an eye on circular updates through the IIBF news feed and benchmark provisioning against prevailing policy rates on the RBI rates page.

Co-lending, P2P, digital lending and ALM

The Co-Lending Model (CLM), introduced in November 2020, lets banks and NBFCs jointly fund priority-sector loans. The NBFC sources and services the borrower while the bank provides the bulk of funds, marrying the reach of NBFCs with the low-cost liabilities of banks.

• Risk sharing: The NBFC retains a minimum 20 percent share of each individual loan on its books; the bank takes up to 80 percent, so the model is often summarised as 80:20.
• P2P lending: NBFC-P2P platforms only act as intermediaries. A single lender exposure across all platforms is capped at Rs 50 lakh, and exposure to one borrower is capped at Rs 50,000 per platform. Platforms cannot lend on their own books or assure returns.
• Digital lending guidelines (2022): All loan disbursals and repayments must flow directly between the borrower and the regulated entity, no pass-through pool accounts of lending service providers. A Key Fact Statement disclosing the all-in Annual Percentage Rate is mandatory, with a cooling-off period for the borrower.
• Liquidity and ALM: Large NBFCs must maintain a Liquidity Coverage Ratio and run structured Asset-Liability Management to avoid the maturity mismatches that toppled IL&FS. Behavioural analysis of cash flows and liquidity buffers are now board-monitored.

Master these four threads together and you can answer almost any NBFC question. Browse more explainer guides on the iibf.store blog to round out your revision.

Conclusion: turn theory into exam marks

NBFC scale-based regulation, co-lending, P2P caps, digital lending safeguards and ALM discipline are now permanent fixtures in IIBF question papers. The fastest way to lock in these distinctions is active recall under timed conditions rather than passive reading. Put your understanding of the four layers, provisioning slabs and the 80:20 co-lending split to the test with the full question bank on iibf.store mock tests, and keep tracking the latest circulars on the IIBF news page so your answers stay current with 2026 norms.