Five Years of RBI Circulars: A Scoreboard for NBFCs

I went back through the circulars. Scale Based Regulation in October 2021. The IRACP clarification of 12 November 2021. Digital lending in 2022, default loss guarantees in 2023, both folded into the Digital Lending Directions of May 2025. Risk weights up in November 2023 and partly back down in February 2025. Gold and silver collateral in June 2025. Co-lending effective January 2026. And on 28 November 2025, the NBFC rulebook replaced by 35 Master Directions in a single stroke.

The theory is, at best, half right.

Start with what the regulator's own data shows

The RBI's sectoral deployment release for June 2026 puts NBFC credit at ₹57.8 trillion, growing 14.4% year on year against 11.1% a year earlier. Retail loans reached ₹25.6 trillion, up 20.3% from 14.3%. Loans against gold jewellery stood at ₹3.41 lakh crore, up 69.3%. These figures are provisional and cover a sample of Upper and Middle Layer NBFCs together with housing finance companies.

The Financial Stability Report of June 2026 finds NBFCs financially sound, supported by strong capitalisation, healthy profitability and improving asset quality. Its stress test across 174 NBFCs starts from an aggregate capital ratio of 22.8% and a gross NPA ratio of 2.3%. Under the severest scenario modelled, capital falls to 20.9% and eleven firms drop below the 15% minimum. The Report on Trend and Progress of Banking in India 2024-25 records the same direction: continued double-digit credit growth, robust capital buffers, asset quality improving.

Now the part that cuts against the sector's own story. RBI's bank sectoral release for the same month puts non-food bank credit growth at 18.3% year on year, against 9.3% a year earlier, comfortably ahead of the NBFC sector's 14.4%. That bank number is powered by industry at 19.2% and services at 21.4%. On the retail side the ranking flips: NBFC retail grew 20.3% against 15.8% for banks' personal loans. In gold, Crisil recorded in January that gold-loan NBFCs are scaling up "despite stiff competition from Banks," with banks intensifying their presence in the segment.

So the honest reading is narrower than the one NBFCs usually offer. The sector was not suppressed. It grew, it is well capitalised, and gold-loan NBFCs in particular are compounding at a rate Crisil puts at roughly 40% a year through fiscal 2027, crossing ₹4 lakh crore of assets under management by March 2027, against 27% between fiscals 2023 and 2025. Business per branch rose about 40% over two fiscals, from around ₹10 crore in fiscal 2024 to around ₹14 crore in the first half of fiscal 2026.

But NBFCs are not uniformly outrunning banks, and on the headline number they are behind. Which means the argument cannot rest on growth. It has to rest on the instruments.

What the circulars were actually doing

Three things.

Closing measurement gaps. The 12 November 2021 IRACP clarification forced day-end tagging of overdue accounts and blocked upgrades to standard until the entire arrears of interest and principal were cleared across all facilities. ICRA measured reported NBFC bad loans running about 150 basis points higher as at 31 December 2021 as a result. Painful, and correct. A 90-day NPA curable by paying interest alone was never a 90-day NPA. After industry representations the RBI gave NBFCs until 30 September 2022 to build the systems for the upgrade rule.

Applying the brakes, then releasing them. The 16 November 2023 circular raised consumer credit risk weights from 100% to 125% for banks and NBFCs alike, carving out housing, education, vehicle and gold loans, and added 25 percentage points to bank exposures to NBFCs wherever the rating-based weight sat below 100%. On 25 February 2025 the RBI reversed the NBFC exposure add-on and brought microfinance consumer credit back to 100%. The 125% on other consumer credit stands.

The brake worked and the release worked. What the sector should note is the tempo: fifteen months from the brake going on to it coming off.

Harmonising conduct. Key Fact Statements, penal charges, digital lending, gold valuation and auction procedure, all issued as entity-agnostic rules covering banks, NBFCs, cooperative banks and housing finance companies together. The Gold and Silver Collateral Directions of June 2025 repealed 31 legacy circulars, the oldest dating to January 1964, and replaced them with a single framework tiering consumption loans at 85% loan-to-value up to ₹2.5 lakh, 80% to ₹5 lakh, and 75% above.

The LTV history is where the grievance was earned

This is the fact most often cited and most often misremembered.

NBFCs were capped at 60% in March 2012 while banks set their own ceilings. Parity arrived in 2014, at 75% for both. Then on 6 August 2020 the RBI raised the bank ceiling to 90% for non-agricultural gold loans until March 2021 and left NBFCs at 75%. FIDC wrote to the Governor arguing that confining the relief to banks punished vulnerable borrowers by exclusion. The Association of Gold Loan Companies called an emergency meeting.

That was a real tilt, and a recent one. The June 2025 Directions closed it and lifted the shared ceiling to 85% on small-ticket consumption loans. Crisil's assessment is that the revision lets loan-to-value on lower-ticket bullet loans rise from 65-68% to roughly 70-75%, even after the new requirement to include accrued interest in the calculation. Loans below ₹2.5 lakh account for around half of gold-loan NBFC assets, and the ₹2.5 to ₹5 lakh band for another fifth.

Consultation moved the final outcome & that is worth remembering the next time a draft comes.

Where the field is still uneven

Four asymmetries survive. None are about capital or provisioning.

Recovery law. Banks, housing finance companies and asset reconstruction companies invoke SARFAESI at ₹1 lakh. NBFCs with assets above ₹100 crore invoke it only at ₹20 lakh, under gazette notification S.O. 652(E) of 12 February 2021. And the notification does not carry across: in Tata Motors Finance Solutions v. Naushad Khan, the Bombay High Court held that being notified a financial institution under section 2(1)(m)(iv) of SARFAESI operates only for that Act, and is distinct from section 2(h) of the RDB Act, 1993. An NBFC can enforce security but cannot file a recovery application before a Debt Recovery Tribunal. FIDC has raised the threshold at successive pre-Budget consultations. It remains unresolved.

Product permissions. On 6 August 2026 the RBI issued draft amendments proposing that NBFCs may offer only term loans and no revolving credit products, with an exemption confined to NBFCs authorised to issue credit cards. There are two, SBI Card and BoB Cards, and both sit inside a bank group. Banks retain cash credit, overdrafts and revolving lines without restriction. Comments close on 28 August 2026.

There is a prudential case here worth stating fairly. A term loan largely supervises itself: fixed amortisation makes overdue status unambiguous and NPA recognition mechanical. A revolving line has no fixed maturity, turns on an "out of order" test rather than days past due, requires drawing power to be recomputed continuously, and can be used to service itself. The draft's own language, barring the sanctioned limit from being restored on repayment, is aimed squarely at that evergreening surface. And an exemption running to two bank subsidiaries suggests the operative test is consolidated supervision rather than charter.

The objection is that the RBI already built the instrument for this. Scale Based Regulation exists to match regulatory and supervisory intensity to size, complexity and interconnectedness. Permitting revolving credit in the Upper and Middle Layers, conditional on core banking systems, a specified out-of-order tagging standard and a board-approved drawing power policy, while barring it in the Base Layer, would calibrate the permission to the risk. The draft instead prohibits by charter and exempts by licence category, which is a blunter tool than the one already in the cupboard.

Collateral use. Paragraph 12 of the Gold and Silver Directions bars every lender from financing the purchase of gold and from lending against primary gold or silver. Banks already held a carve-out for working capital to jewellers. The first amendment of 29 September 2025 widened it to any borrower using gold or silver as a manufacturing input, with the metal accepted as security. The proviso names its eligible lenders exactly: a scheduled commercial bank, or a Tier 3 or Tier 4 urban cooperative bank. NBFCs, housing finance companies and the remaining cooperative categories sit outside it.

Priority sector. Banks may classify on-lending to NBFCs as priority sector under paragraphs 22 to 24 of the PSL Master Directions, 2025. The exclusion is not general, which makes its target clearer: loans against gold jewellery originated by NBFCs are outside PSL eligibility, and so are bank purchase, assignment and investment transactions where the underlying is NBFC gold jewellery loans. A bank's own agricultural gold loan counts toward its target. The identical loan written by an NBFC and bought by that bank does not.

Why the grievance feels true anyway

Convergence has run in one direction. Harmonisation has consistently meant NBFC rules rising to bank standards. Day-end overdue tagging, core banking systems, mandatory listing for the upper layer, governance architecture, Key Fact Statements. It has rarely meant bank privileges extending downward. That is what founders experience as tilt.

Uniform rules produce non-uniform burdens. A ₹5,000 per day compensation liability for delayed collateral release, duplicate assay certificates, mandatory borrower presence at valuation, custody restricted to a lender's own branches and its own employees. These are fixed costs, and fixed costs are regressive.

Paragraphs 30 and 31 of the Gold Directions are the sharpest example. That rule is identical for banks and NBFCs. A bank arrives at it with a branch network already built. An asset-light NBFC arrives at it holding a business model the rule constrains. Crisil's own numbers show where the pressure lands: average assets per branch for gold-loan NBFCs at roughly ₹14 crore, which is the denominator every fixed compliance cost now divides into.

The deposit bargain goes unstated. Deputy Governor M. Rajeshwar Rao put the numbers on record at the CII NBFC Summit in February 2024. Minimum capital of ₹1,000 crore for a universal bank against ₹10 crore for an NBFC. In the five years to that speech, 447 NBFC registrations granted, against zero universal bank licences and two small finance bank licences. A 40% priority sector obligation for banks, 75% for small finance banks, none for NBFCs. NBFC capital adequacy of 15% covering credit risk alone, against a bank's 9% covering credit, market and operational risk.

His argument was that accepting deposits requires a macro-financial safety net, deposit insurance and a central bank liquidity backstop, and that these arrive with intense supervisory oversight. Non-acceptance of deposits is precisely what buys NBFCs low entry barriers, freedom to specialise and low exit barriers. The revealed preference is consistent: no new deposit-taking registration since 1997, and deposit-taking NBFCs down from 241 in March 2014 to 26 by September 2023. He had been blunter a year earlier, at the Gatekeepers of Governance Summit in November 2023, where he said a level playing field is an important regulatory objective, "but it is not the overriding one."

You cannot hold the NBFC's freedom of entry and demand the bank's balance sheet privileges.

What to actually fight for

The general claim that the RBI favours banks does not survive contact with the instruments. It also does not need to be true for the sector to have a case, and pretending the growth numbers prove it backfires, because on the RBI's own June 2026 data banks are growing faster than NBFCs.

Harmonise the SARFAESI threshold at ₹1 lakh. Notify NBFCs under section 2(h) of the RDB Act so enforcement and adjudication sit in the same forum. Recast the revolving credit proposal as a layer-based permission with defined supervisory preconditions rather than a charter-based prohibition, before 28 August 2026. Extend the paragraph 12 working capital carve-out to NBFCs on the same conduct conditions applied to banks.

Sources. RBI: Sectoral Deployment of Credit by NBFCs, June 2026; Sectoral Deployment of Bank Credit, June 2026; Financial Stability Report, June 2026; Report on Trend and Progress of Banking in India 2024-25; Lending Against Gold and Silver Collateral Directions, 2025 (DOR.CRE.REC.26/21.01.023/2025-26) and 1st Amendment (DOR.CRE.REC.52/21.01.023/2025-26); Master Directions on Priority Sector Lending, 2025 and PSL FAQs; circulars of 6 August 2020, 12 November 2021, 15 February 2022, 16 November 2023 (RBI/2023-24/85), 25 February 2025 (RBI/2024-25/119 and /120) and 30 September 2024; draft amendments to the NBFC Credit Facilities Directions, 6 August 2026. Speeches of Deputy Governor M. Rajeshwar Rao, 2 November 2023 and 9 February 2024. Crisil Ratings press releases of 24 November 2025 and 22 January 2026. ICRA sector commentary, February 2022. Gazette notification S.O. 652(E) of 12 February 2021. Tata Motors Finance Solutions Ltd v. Naushad Khan, Bombay High Court.