India’s Non-Banking Financial Companies have long been the financial system’s unsung backbone, extending credit where traditional banks hesitated. Emerging in the 1960s to serve niche and underserved markets, NBFCs have since evolved into financial powerhouses, rivaling banks in reach and relevance. But their meteoric rise has also exposed systemic vulnerabilities. The collapse of giants like IL&FS and DHFL highlighted glaring lapses in risk management and regulatory oversight, triggering a crisis of confidence.
In response, the Reserve Bank of India introduced the Scale-Based Regulation (SBR) Framework in January 2021, a landmark reform aimed at modernizing NBFC supervision. Abandoning the uniform regulatory mold, the SBR framework embraces a tiered, risk-sensitive approach, calibrated to the size and systemic significance of NBFCs. This article explores the design and objectives of the SBR framework and asks whether India’s regulatory institutions are prepared for the complex task of implementation.
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