The financial services sector continues to evolve in response to changing economic realities, technological advancements, and an increasingly dynamic regulatory environment. As financial institutions expand their role in supporting economic growth and financial inclusion, maintaining a balance between strong governance and efficient compliance has become more important than ever.
Regulatory frameworks are no longer designed solely to strengthen oversight; they are also intended to ensure that compliance requirements remain proportionate to the nature, ownership, and risk profile of different institutions. This balanced approach is essential for fostering resilience, transparency, and sustainable growth across the financial ecosystem.
A recent regulatory development reinforces this philosophy by introducing a targeted refinement to the financial reporting framework applicable to certain categories of Non-Banking Financial Companies (NBFCs). Government-owned financial institutions operate within a comprehensive governance framework that extends beyond conventional regulatory supervision. They are subject to statutory audits, government oversight, public accountability mechanisms, and multiple layers of institutional scrutiny.
Recognising these existing safeguards, the revised framework acknowledges that certain compliance obligations may be unnecessary where equivalent oversight mechanisms are already firmly established. This reflects a mature regulatory perspective that focuses on outcomes rather than applying identical requirements to every regulated entity.
Equally important is the broader message that this development sends regarding the future direction of financial sector regulation. Modern regulation is increasingly becoming risk-based, proportionate, and principles-driven. Institutions with different ownership structures, governance arrangements, and systemic importance may require differentiated regulatory treatment while continuing to uphold the same overarching objectives of transparency, financial discipline, and stakeholder confidence.
Such an approach enables supervisory resources to be directed where they are most needed while reducing avoidable compliance burdens for entities already operating under rigorous accountability frameworks.
For the wider NBFC sector, the existing standards of financial reporting, disclosure, and corporate governance continue to remain central to maintaining public confidence. Transparent financial statements, high-quality disclosures, effective internal controls, and sound governance practices remain indispensable pillars of a resilient financial institution.
Regulatory refinements such as these should therefore be viewed not as a relaxation of standards, but as an effort to improve regulatory efficiency by aligning compliance expectations with institutional realities. As the financial landscape continues to transform, institutions must remain committed to strengthening governance, embracing transparency, and adapting to evolving supervisory expectations.
Sustainable growth is built not only on sound business performance but also on responsible governance and regulatory discipline. A balanced and responsive regulatory framework encourages innovation while safeguarding stability, ultimately contributing to a stronger and more resilient financial system.
It is through such thoughtful refinements that the financial sector can continue to evolve with confidence, accountability, and a clear focus on long-term value creation for all stakeholders.
Warm regards,
Dinesh Gupta
Chief Editor – NBFC FinSight
In a significant regulatory move to reinforce prudential risk management across the Non-Banking Financial Company (NBFC) sector, the Reserve Bank of India (RBI) has issued the Reserve Bank of India Third Amendment Directions, 2026 (RBI/2026-27/164) on June 24, 2026.
Effective immediately, the amendments seek to strengthen the concentration risk framework by aligning exposure norms with the Scale Based Regulatory (SBR) Framework, promoting greater regulatory consistency, and enhancing the resilience of NBFCs against excessive borrower and group concentration risks.
The revised framework also reflects the RBI’s continuing focus on ensuring that prudential standards remain proportionate, transparent, and aligned with evolving risk management practices.
A key amendment relates to Government-owned NBFCs. The RBI has withdrawn the exemptions from concentration norms that were previously available to such entities. Going forward, Government-owned NBFCs will be required to comply with the prudential concentration limits applicable to the regulatory layer—Base Layer, Middle Layer, or Upper Layer—in which they are classified.
To facilitate a smooth transition, the RBI has clarified that any existing breaches of concentration limits, including drawdown of already sanctioned facilities as on the date of issuance of the amendment, may continue until their natural maturity. However, no additional exposure can be undertaken towards such obligors beyond the existing sanctioned limits.
Further, Government-owned NBFCs classified in the Middle Layer or Upper Layer may exceed the prescribed prudential exposure limits only where the additional exposure is completely offset through eligible credit risk transfer instruments, resulting in zero net incremental exposure.
This change forms part of the RBI’s broader effort to simplify and harmonise concentration risk regulations across different categories of NBFCs while ensuring that prudential safeguards continue to remain effective.
For NBFCs classified in the Upper Layer, the RBI has introduced an important clarification regarding exposures supported by State Government guarantees. Under the revised framework, exposures that are fully backed by a State Government guarantee will be recognised as exposures to the guaranteeing State Government rather than to the original borrower.
Consequently, such exposures will be exempt from the applicable prudential exposure limits. However, these guaranteed exposures will continue to attract a risk weight of 20 per cent since the underlying credit risk transfer mechanism is a State Government guarantee.
This clarification provides greater certainty regarding the prudential treatment of guaranteed exposures while recognising the risk mitigation benefits offered by sovereign-backed guarantees.
RBI aims to promote stronger credit discipline, improve consistency in regulatory oversight, and enhance the financial stability of the NBFC ecosystem. NBFCs should carefully review these amendments, assess their existing exposure portfolios, and implement the necessary compliance measures to ensure continued adherence to the revised prudential requirements.
In a move aimed at refining the governance framework applicable to Non-Banking Financial Companies (NBFCs), the Reserve Bank of India (RBI) has issued the Reserve Bank of India (Non-Banking Financial Companies – Governance) Amendment Directions, 2026.
Effective from the date of issuance, the amendment introduces a targeted change to the existing governance framework prescribed under the Reserve Bank of India (Non-Banking Financial Companies – Governance) Directions, 2025, following a regulatory review of the governance requirements applicable to NBFCs classified in the Upper Layer (NBFC-UL) under the Scale Based Regulatory (SBR) Framework.
The amendment reflects the RBI’s objective of ensuring that governance norms remain proportionate to the ownership structure and operational characteristics of regulated entities while maintaining sound governance standards across the NBFC sector.
The amendment inserts a proviso after Paragraph 43 of the principal Directions, providing that the provisions contained therein shall not apply to NBFCs in the Upper Layer that are fully owned and controlled by the Government.
Consequently, Government-owned NBFC-ULs have been exempted from the governance requirement prescribed under Paragraph 43 of the existing Directions. While all other governance obligations under the regulatory framework continue to remain applicable unless specifically exempted, this amendment creates a limited carve-out for entities that are wholly owned and controlled by the Central or State Government.
The RBI’s decision is based on a review of the regulatory framework governing NBFCs operating in the Upper Layer. Government-owned financial institutions often function within an established governance ecosystem that includes statutory oversight, administrative control by the Government, public accountability mechanisms, audit requirements, and other supervisory safeguards.
Recognising these additional governance structures, the RBI has determined that the specific requirement contained in Paragraph 43 may not be necessary for Government-owned Upper Layer NBFCs. The amendment, therefore, seeks to avoid duplication of governance requirements while preserving regulatory effectiveness.
Importantly, the exemption is narrowly tailored and applies only to NBFCs that satisfy both conditions: being classified as an Upper Layer NBFC under the Scale Based Regulatory Framework and being fully owned as well as controlled by the Government.
Private sector NBFCs, listed entities, subsidiaries with mixed ownership, and Government-backed institutions that do not meet the criteria of complete Government ownership and control will continue to comply with the governance requirements prescribed under Paragraph 43 without any relaxation.
An effective Transaction Monitoring Framework (TMF) is a cornerstone of a robust Anti-Money Laundering (AML) and Countering the Financing of Terrorism (CFT) compliance programme.
With the increasing adoption of digital financial services, real-time payment systems, and technology-driven banking channels, financial institutions are processing millions of transactions daily. This growing transaction volume has heightened the need for sophisticated monitoring mechanisms capable of identifying unusual or suspicious activities at an early stage.
Accordingly, regulators expect banks, Non-Banking Financial Companies (NBFCs), payment system operators, and other regulated entities to establish comprehensive transaction monitoring systems that are capable of detecting potential money laundering, terrorist financing, fraud, sanctions violations, and other financial crimes.
A transaction monitoring framework involves the continuous analysis of customer transactions to identify activities that are inconsistent with the customer’s known profile, business operations, income pattern, or historical transaction behaviour.
Monitoring systems generally use predefined rules, risk-based scenarios, behavioural analytics, and automated alerts to identify transactions that warrant further investigation.
Common red flags include unusually large cash transactions, rapid movement of funds through multiple accounts, frequent transfers to high-risk jurisdictions, structuring of transactions to avoid reporting thresholds, sudden changes in transaction patterns, multiple transactions without an apparent economic purpose, and dealings involving politically exposed persons (PEPs) or sanctioned entities.
A risk-based approach forms the foundation of an effective transaction monitoring framework. Financial institutions are expected to categorise customers based on their inherent risk profile by considering factors such as customer type, occupation, business activity, geography, products and services used, delivery channels, and transaction behaviour.
Higher-risk customers require enhanced monitoring, more frequent reviews, and stronger due diligence measures. Transaction monitoring should therefore be dynamic and capable of adapting to changes in customer behaviour and emerging financial crime typologies rather than relying solely on static thresholds.
A well-designed TMF not only assists financial institutions in meeting regulatory obligations under AML/CFT laws but also protects them from financial crime, reputational damage, regulatory penalties, and operational risks.
By combining robust governance, advanced technology, risk-based monitoring, and continuous improvement, regulated entities can strengthen their financial crime prevention capabilities while promoting greater transparency, integrity, and trust within the financial system.
In today’s rapidly evolving financial landscape, static thresholds and fixed risk parameters may become ineffective over time due to changing market conditions, technological advancements, customer behaviour, and emerging financial risks.
Accordingly, financial institutions are expected to ensure that operational, prudential, compliance, and risk management thresholds remain appropriately calibrated to reflect prevailing market realities.
Periodic calibration of thresholds enables institutions to maintain the effectiveness of their governance frameworks while ensuring that risk management practices continue to align with regulatory expectations and business objectives.
Thresholds are widely used across various business functions, including transaction monitoring, credit exposure limits, fraud detection, liquidity management, operational risk, cybersecurity, customer due diligence, and investment decisions.
If these thresholds remain unchanged despite significant shifts in market conditions, institutions may either generate excessive alerts that burden compliance teams or fail to identify genuine risks due to outdated parameters. Regular review and recalibration therefore ensure that monitoring systems remain responsive, proportionate, and risk-sensitive.
Market evolution can significantly influence the appropriateness of existing thresholds. Inflation, changes in interest rates, economic growth, digital payment adoption, evolving customer transaction patterns, technological innovation, and new financial products may all affect transaction volumes and risk profiles.
Similarly, regulatory developments, industry best practices, and emerging financial crime typologies require institutions to reassess whether existing thresholds continue to provide effective risk coverage.
Institutions should therefore periodically evaluate both quantitative and qualitative factors before determining whether adjustments are necessary.
Strong governance plays a critical role in maintaining appropriately calibrated thresholds. Senior management should periodically review key risk indicators and recommend revisions where necessary, while the Board or relevant governance committees should provide oversight for material changes affecting the institution’s overall risk appetite.
Ultimately, ensuring that thresholds remain calibrated to market evolution is not merely a regulatory expectation but also a sound risk management practice.
Dynamic and well-governed threshold management enables financial institutions to respond proactively to changing business environments, strengthen operational resilience, improve the accuracy of monitoring systems, and allocate compliance resources more efficiently.
By continuously reviewing and refining risk thresholds, organisations can better identify emerging risks, reduce unnecessary operational burdens, enhance decision-making, and maintain a governance framework that remains effective, resilient, and aligned with evolving market conditions.
The most important dimension of a resilient financial ecosystem lies in the resilience of Non-Banking Financial Companies (NBFCs) themselves.
While policymakers establish the regulatory framework and the Reserve Bank of India (RBI) prescribes prudential standards and supervisory expectations, the responsibility for building resilience ultimately rests with individual NBFCs.
Resilience must be embedded across the organisation and reflected in every stage of its operations—from customer onboarding and credit underwriting to pricing of loans, liquidity management, funding strategies, investment decisions, risk monitoring, technology governance, customer protection, and internal controls.
It should also be evident in the institution’s ability to identify emerging risks, respond proactively to changing market conditions, and maintain business continuity during periods of financial or operational stress.
Over the years, the NBFC sector has undergone a significant transformation in its business models and portfolio composition. Many NBFCs have diversified beyond concentrated exposures towards a broader mix of retail lending, MSME financing, vehicle loans, housing finance, consumer credit, and specialised lending segments.
Advances in data analytics, digital lending platforms, alternative credit assessment models, and technology-enabled underwriting have further strengthened credit evaluation and portfolio monitoring capabilities.
While diversification enhances resilience, these portfolios continue to face risks arising from economic downturns, rising delinquencies, unsecured lending, concentration in specific sectors or geographies, liquidity pressures, and evolving customer behaviour.
Consequently, resilience depends not only on portfolio diversification but also on maintaining prudent underwriting standards, robust monitoring mechanisms, and disciplined risk management practices.
Institutional resilience is equally dependent on strong governance and effective decision-making.
The Board of Directors and senior management play a critical role in establishing an appropriate risk culture, defining risk appetite, ensuring regulatory compliance, and promoting accountability across the organisation.
Decisions relating to credit approvals, funding strategies, outsourcing arrangements, digital transformation initiatives, and operational risk management should be supported by sound governance frameworks, transparent policies, and effective oversight.
Regular stress testing, scenario analysis, contingency planning, and periodic review of risk management frameworks further strengthen an NBFC’s ability to withstand adverse economic conditions and operational disruptions.
While the regulatory framework provides the foundation, sustainable resilience is achieved only when sound governance and prudent risk management become integral to the institution’s everyday operations and strategic decision-making.
A resilient Non-Banking Financial Company (NBFC) is built upon a strong and well-managed balance sheet.
While the timely identification and recognition of financial stress is an important first step, sustainable resilience can only be achieved when such recognition is followed by decisive corrective action.
Merely identifying deteriorating asset quality or liquidity pressures without implementing appropriate remedial measures may weaken financial stability and restrict future business growth.
Similarly, capital infusion without strengthening governance, credit appraisal, and risk management practices may improve short-term financial indicators but fail to address the underlying structural weaknesses.
Long-term resilience therefore requires a comprehensive approach that combines prudent capital management, effective risk governance, sound underwriting standards, and disciplined portfolio monitoring.
Over the years, the regulatory framework governing NBFCs has evolved significantly to strengthen balance sheet resilience.
The Reserve Bank of India (RBI) has introduced enhanced prudential norms relating to capital adequacy, asset classification, provisioning requirements, liquidity risk management, governance standards, concentration risk limits, and Scale Based Regulation (SBR).
These measures have encouraged NBFCs to adopt stronger financial discipline, improve transparency, maintain adequate capital buffers, and enhance their ability to withstand periods of economic uncertainty.
Regulatory reforms have also promoted better alignment between business growth strategies and prudent risk management practices.
At the institutional level, NBFCs have increasingly focused on strengthening the quality of their balance sheets through improved credit underwriting, portfolio diversification, and proactive risk management.
Many entities have reduced excessive concentration in specific borrowers, sectors, or geographies by expanding into diversified lending segments such as retail finance, MSME lending, vehicle finance, affordable housing finance, and other specialised products.
At the same time, institutions have enhanced borrower due diligence, strengthened credit assessment models, and adopted technology-driven monitoring systems to improve portfolio quality and identify early signs of financial stress.
Balance sheet strengthening also requires maintaining adequate liquidity and diversified funding sources.
Since many NBFCs rely on market borrowings, bank funding, debentures, securitisation, and co-lending arrangements, prudent asset-liability management (ALM) assumes critical importance.
Institutions should regularly monitor liquidity gaps, maintain sufficient liquidity buffers, conduct stress testing, and establish contingency funding plans to manage potential market disruptions.
Diversification of funding sources further reduces refinancing risk and enhances financial stability during periods of market volatility.
Equally important is the role of governance in sustaining a strong balance sheet.
The Board of Directors and senior management should actively oversee capital planning, provisioning policies, portfolio performance, recovery strategies, and risk appetite while ensuring compliance with applicable regulatory requirements.
Timely recognition of stressed assets, effective recovery mechanisms, periodic portfolio reviews, and data-driven decision-making contribute significantly to preserving asset quality and maintaining investor confidence.
Balance sheet resilience requires continuous investment in robust governance, prudent lending practices, capital adequacy, liquidity management, and risk oversight.
NBFCs that maintain well-capitalised, diversified, transparent, and resilient balance sheets are better positioned to navigate economic cycles, support sustainable credit growth, safeguard stakeholder interests, and contribute meaningfully to the stability and development of India’s financial system.
| Date | Category | Return / Compliance | Applicability / Details |
|---|---|---|---|
| 07-Jul | Income Tax | Monthly TCS Payment | Taxpayers collecting TCS for the month of June 2026. |
| 07-Jul | Income Tax | Monthly TDS Payment | Taxpayers deducting TDS for the month of June 2026. |
| 11-Jul | GST | GSTR-1 Filing (Monthly) | For taxpayers with annual turnover above ₹1.5 crore or who have opted for monthly filing. |
| 13-Jul | GST | Quarterly GSTR-1 under QRMP | Filing for April–June 2026 quarter. |
| 15-Jul | Income Tax | Form 27EQ | TCS return for April–June 2026 quarter. |
| 15-Jul | PF / ESIC | ESI Challan | Employers registered under the ESI Act for June 2026. |
| 15-Jul | PF / ESIC | PF Challan (ECR) | Employers registered under the EPF Act for June 2026. |
| 15-Jul | RBI | DNBS-4B Return | Base Layer NBFCs with asset size of ₹100 crore and above and Middle Layer NBFCs; structural liquidity and interest-rate sensitivity return. |
| 18-Jul | GST | CMP-08 | Filing for April–June 2026 quarter under the Composition Scheme. |
| 20-Jul | GST | GSTR-3B (Monthly) | For taxpayers with annual turnover above ₹5 crore or those opting for monthly filing. |
| 21-Jul | RBI | Financial Details Return (DNBS-02) | Base Layer NBFCs for reporting financial position, asset classification, and liabilities. |
| 21-Jul | RBI | DNBS-01 and DNBS-03 | Middle Layer and Upper Layer NBFCs for financial performance, risk, and deposits. |
| 21-Jul | RBI | DNBS-4A Return | Base Layer NBFCs with asset size of ₹100 crore and above and Middle Layer NBFCs; short-term dynamic liquidity return. |
| 21-Jul | RBI | Return of Overseas Investments (DNBS-13) | Applicable Base Layer NBFCs with overseas investment. |
| 22-Jul | GST | GSTR-3B | Quarterly filing for April–June 2026 for applicable South India States. |
| 24-Jul | GST | GSTR-3B | Quarterly filing for April–June 2026 for applicable North India States. |
| 30-Jul | Income Tax | Issue of TCS Certificates | Form 27D for April–June 2026. |
| 30-Jul | Income Tax | TDS Payment | Forms 26QB, 26QC, 26QD and 26QE for the relevant month. |
| 30-Jul | RBI | DNBS08 – CRILC Main | Base Layer NBFCs with asset size of ₹500 crore and above and Middle Layer NBFCs; return for large credits and SMA. |
| 31-Jul | Income Tax | TDS Return Filing | Q1 of FY 2026, April–June 2026. |
| 31-Jul | Income Tax | Income Tax Return Filing | Applicable Individuals and HUFs not having business or professional income. |
| Date | Category | Return / Compliance | Applicability / Details |
|---|---|---|---|
| 07-Aug | Income Tax | Monthly TCS Payment | Taxpayers collecting TCS for July 2026. |
| 07-Aug | Income Tax | Monthly TDS Payment | Taxpayers deducting TDS for July 2026. |
| 11-Aug | GST | GSTR-1 Filing (Monthly) | For taxpayers with annual turnover above ₹1.5 crore or those opting for monthly filing. |
| 13-Aug | GST | GSTR-1 IFF under QRMP | Optional filing for July 2026. |
| 15-Aug | Income Tax | Form 16A | Issue of TDS certificates for April–June 2026. |
| 15-Aug | PF / ESIC | ESI Challan | Employers registered under the ESI Act for July 2026. |
| 15-Aug | PF / ESIC | PF Challan (ECR) | Employers registered under the EPF Act for July 2026. |
| 15-Aug | RBI | DNBS-4B Return | Base Layer NBFCs with asset size of ₹100 crore and above and Middle Layer NBFCs; structural liquidity and interest-rate sensitivity return. |
| 20-Aug | GST | GSTR-3B (Monthly) | For taxpayers with annual turnover above ₹5 crore or those opting for monthly filing. |
| 25-Aug | GST | GST Challan Payment | For quarterly filers where available ITC is insufficient for July 2026. |
| 30-Aug | Income Tax | TDS Payment | Forms 26QB, 26QC, 26QD and 26QE for July 2026. |
| 30-Aug | RBI | DNBS08 – CRILC Main | Base Layer NBFCs with asset size of ₹500 crore and above and Middle Layer NBFCs; return for large credits and SMA. |
| 31-Aug | Income Tax | Income Tax Return Filing | Applicable Individuals, HUFs, Firms, LLPs and AOPs having business or professional income. |
| S. No. | Compliance | Requirement |
|---|---|---|
| 1 | Statutory Compliance Board Meetings | All NBFCs should conduct quarterly meetings discussing regulatory updates, four times a year, in accordance with the Companies Act. |
| 2 | FEMA Foreign Investment Reporting | NBFCs with FDI should report applicable foreign direct investment transactions to RBI on a monthly basis under FEMA and RBI FDI guidelines. |
| 3 | Customer Complaint Tracking | All NBFCs should maintain monthly records of customer grievances and resolutions in accordance with RBI Fair Practices Code requirements. |
| 4 | CERSAI Reporting | NBFCs engaged in secured lending should report applicable securitisation and asset reconstruction transactions on a weekly basis under the SARFAESI framework. |
| 5 | CKYC Uploads | All NBFCs onboarding new customers should upload new customer information under Central KYC on a weekly basis. |
| 6 | FIU-IND Reporting – STR | All NBFCs should submit suspicious transaction reports to FIU-IND as required under the Prevention of Money Laundering Act. |
| 7 | DNBS10 – Statutory Auditor’s Certificate | Applicable NBFCs and ARCs must submit confirmation of compliance with RBI norms within the prescribed period after Board approval of financial statements. |
| 8 | DNBS09 – CRILC Weekly | Base Layer NBFCs with asset size of ₹500 crore and above and Middle Layer NBFCs should file the return for large credits and SMA on or before Wednesday of the following week. |
| S. No. | Form | Compliance |
|---|---|---|
| 1 | AOC-4 CFS | Annual filing covering consolidated financial statements, including Profit & Loss Account and Balance Sheet, within 30 days of the AGM. |
| 2 | AOC-4 NBFC (IND AS) | Annual filing covering standalone financial statements within 30 days of the AGM. |
| 3 | MGT-7 | Annual return providing details of Board meetings and company structure within 60 days of the AGM. |
| S. No. | Form | Compliance |
|---|---|---|
| 1 | INC-22 | Change in registered office address, within 15 days of the change. |
| 2 | DIR-12 | Appointment or resignation of Directors, within 30 days of the event. |
| 3 | PAS-3 | Return of allotment of shares, within 30 days of the event. |
| 4 | MGT-14 | Filing of resolutions with the Registrar of Companies, within 30 days of the event. |
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