RBI Governance Amendment 2026: Exemption for Government-Owned Upper Layer NBFCs

The Reserve Bank of India (Non-Banking Financial Companies – Governance) Amendment Directions, 2026 introduce a focused change to the governance regime applicable to Non-Banking Financial Companies (NBFCs), specifically those classified in the Upper Layer (NBFC-UL) under the Scale Based Regulatory Framework.

Through this amendment, the Reserve Bank of India (RBI) has carved out a limited exemption from certain governance norms for NBFC-ULs that are entirely owned and controlled by the Government, while leaving the broader framework for all other NBFC-ULs intact.

Background: Governance Directions for NBFCs

The original governance framework for NBFCs was set out in the Reserve Bank of India (Non-Banking Financial Companies – Governance) Directions dated November 28, 2025 (referred to as "Directions"). These Directions were issued under statutory powers granted to RBI by:

  • Reserve Bank of India Act, 1934
  • Factoring Regulation Act, 2011
  • National Housing Bank Act, 1987
  • And other enabling statutory provisions

These Directions lay down a comprehensive governance architecture covering, among other matters:

  • Board composition and functioning
  • Committees of the Board
  • Fit and proper criteria for directors
  • Risk management and oversight
  • Compliance and internal control mechanisms

For NBFC-ULs, which are subject to the most intensive regulatory scrutiny under the Scale Based Regulatory Framework, these governance standards are particularly rigorous, reflecting their systemic importance and risk profile.

Need for the 2026 Amendment

RBI undertook a review of the regulations governing NBFCs in the Upper Layer under the Scale Based Regulatory Framework. During this review, it was observed that certain governance provisions had been framed without adequately differentiating between:

  • NBFC-ULs owned and controlled by the Government; and
  • Other NBFC-ULs, including privately held or widely held entities

Government-owned and Government-controlled NBFC-ULs operate within a distinct oversight environment, which typically includes:

  1. Direct ownership by the Central or State Government
  2. Additional supervisory layers, such as:
    • Administrative ministries
    • Parliamentary or legislative oversight
    • Internal Government audit and vigilance frameworks
  3. Public policy objectives, in addition to commercial or financial considerations

In light of this unique oversight structure, RBI concluded that certain governance requirements, designed primarily for non-Government entities, might be disproportionately burdensome or duplicative when applied to fully Government-owned NBFC-ULs.

Accordingly, RBI decided to introduce a calibrated relaxation, while keeping the overall governance framework otherwise unchanged.

The Reserve Bank of India (Non-Banking Financial Companies – Governance) Amendment Directions, 2026 have been issued under the same set of statutory powers that underpinned the original 2025 Directions.