MUMBAI, October 12 — The Reserve Bank of India (RBI) on Monday issued comprehensive regulatory circulars strengthening underwriting standards and capital adequacy buffers for Non-Banking Financial Companies (NBFCs), with stringent directives directed at Upper-Layer NBFCs (NBFC-UL) and Microfinance Institutions (NBFC-MFIs) engaged in rapid retail unsecured lending.
According to the central banking authority, the measures aim to prevent asset-quality deterioration and excessive indebtedness across retail borrowing demographics. Under the revised framework, the 125 percent risk weight on consumer credit exposures remains operational, while a stringent ceiling has been imposed on multiple lending: microfinance lenders cannot extend collateral-free credit to a household with active facilities from more than three separate regulated entities.
The regulator mandated that all high-volume NBFCs institute board-approved internal portfolio caps on unsecured lending portfolios and submit quarterly macroprudential stress-test audits. NBFC boards must actively review loan-to-income (LTI) ratios, early-warning delinquency indicators, and debt-service-coverage capabilities before sanctioning top-up microloans.
The Scale-Based Regulatory (SBR) framework for NBFCs (Base, Middle, Upper, and Top layers introduced in 2022), Basel III Capital-to-Risk-Weighted Assets Ratio (CRAR) mandates, macroprudential risk-weight adjustments, and the RBI's Harmonised Framework for Microfinance Loans are foundational topics across UPSC Civil Services (GS-III: Indian Economy & Banking) and RBI Grade B examinations.