On Friday, the Reserve Bank of India (RBI) proposed a significant overhaul of the classification framework for non-banking financial companies (NBFCs), suggesting that those with an asset size of ₹1 trillion (approximately $12 billion) or more will be categorized as 'upper layer' entities. This new criterion aims to simplify the current complex scoring system, which combines both quantitative and qualitative assessments. The RBI's proposal also includes state-owned NBFCs, which were previously classified under lower tiers, thereby potentially increasing the number of upper-layer NBFCs beyond the current count of 15. The RBI has invited feedback on this draft until May 4, 2026. Experts believe that this change provides clarity to stakeholders and indicates a more harmonized approach to regulation. However, existing upper-layer NBFCs that do not meet the new asset threshold may still retain their classification for up to five years, maintaining higher regulatory standards during that period. The shift to a size-based classification is viewed as a simplification of the previous framework, which could ease listing requirements for some previously unlisted companies. Overall, while the proposed changes aim to enhance governance, the immediate operational impact on existing upper-layer NBFCs appears limited.