Nikhil is planning to establish a Non-Banking Financial Company (NBFC) and is currently in discussions with potential investors to raise his initial capital. During one such meeting, an investor informs him that the Rese

Non-Banking Financial Companies (NBFCs) play an important role in extending credit, especially in underserved and unbanked regions. To strengthen governance and risk management in this sector, the Reserve Bank of India introduced the Scale-Based Regulatory Framework (SBR) in October 2021, effective from 1st October 2022. The framework aims to enhance transparency, improve disclosures, and apply regulation proportionate to the systemic significance of NBFCs. SBR follows a four-layered pyramid structure: Base Layer: The Base Layer shall comprise of non-deposit taking NBFCs below the asset size of ₹1000 crore, Peer to Peer Lending Platform, Account Aggregator, Non-Operative Financial Holding Company and NBFCs not availing public funds and not having any customer interface. Middle Layer: The Middle Layer shall consist of all deposit taking NBFCs, non-deposit taking NBFCs with asset size of ₹1000 crore and above and NBFCs undertaking the activities of Standalone Primary Dealers, Infrastructure Debt Fund, Core Investment Companies, Housing Finance Companies and Infrastructure Finance Companies. Upper Layer: The Upper Layer comprise of those NBFCs which require enhanced regulatory supervision. The top ten eligible NBFCs in terms of their asset size shall always reside in the upper layer, irrespective of any other factor. Top Layer: The Top Layer is empty. This layer can get populated if the Reserve Bank is of the opinion that there is a substantial increase in the potential systemic risk from specific NBFCs in the Upper Layer. Such NBFCs shall move to the Top Layer from the Upper Layer. Accordingly, Nikhil may be advised.