On November 28, 2026, the RBI has notified new directions viz. Reserve Bank of India (Non-Banking Financial Companies – Governance) Directions, 2025 (“Governance Directions”) which deals with the governance guidelines applicable to certain NBFCs according to four different layers specified therein.

A success of any company is significantly influenced by its governance structure, at the heart of which sits the Board of Directors. Corporate governance is the ‘way of life’ for the company which maximises the shareholders’ value on a sustainable basis and ensures fairness to all other stakeholders of the company. A company ensures good governance through the implementation of effective policies and procedures mandated and regularly reviewed by the Board of Directors. In view of this, the Companies Act, 2013 (“CA2013”) provides that a private company must have at least two directors, a public company must have at least three directors, and a One Person Company should have one director.

Recognizing the smaller scale of operations and limited public accountability, there are several provisions of the CA2013 are not made applicable to the private companies as well as the unlisted public companies having capital below certain threshold. Further, the Central Government has granted several exemptions to private companies to reduce compliance burdens, foster entrepreneurship, and allow operational flexibility that such companies could carry on business without much hassle and bearing huge cost of compliance.

Several private companies and the unlisted public companies are registered with the Reserve Bank of India (“RBI”) as Non-Banking Financial Companies (“NBFCs”) which play a crucial role in providing financial services to the public by supplementing the traditional banking system. NBFCs importance lies in their ability to cater to a diverse range of customers, often those underserved by conventional banks and financial institutions. NBFCs are vital for creating a more inclusive, competitive, and robust financial landscape, ensuring a broader segment of the population has access to necessary financial services. From time to time, the RBI has been issuing several directions, guidelines and regulations for NBFCs to ensure customer protection and success of NBFCs. The guidelines/regulations issued by the RBI are stricter than the provisions of the CA2013. Consequently, some the privileges and exemptions which are available to the private/closely-held public companies if the same are registered as NBFCs with the RBI. While it is important to note that the RBI guidelines/regulations take into account the size and complexity of operations performed by the NBFCs.

On November 28, 2026, the RBI has notified new directions viz. Reserve Bank of India (Non-Banking Financial Companies – Governance) Directions, 2025 (“Governance Directions”) which deals with the governance guidelines applicable to certain NBFCs according to four different layers specified therein. Earlier the governance guidelines applicable to NBFCs were part of RBI’s Master Direction – Reserve Bank of India (Non-Banking Financial Company – Scale Based Regulation) Directions, 2023 which has been withdrawn post RBI notifying Governance Directions.

Some of the important compliances which an NBFC is required comply, that may slightly differ according layer, are enumerated below.

1. NBFC inter alia required to have following policies viz. (a) Policy for deciding ‘fit and proper’ status of directors at the time of appointment and on a continuing basis; (b) Policy laying down the role and responsibilities of the Chief Compliance Officer; (c) Compensation Policy; (d) Policy on information / reports which will be placed before the Board for review.

2. NBFC need to have at least one Director having relevant experience and worked in either bank or an NBFC. Further, it needs to have internal process to conduct due diligence of directors on continuing basis.

3. NBFC with asset size of Rs.5000 crore is required to appoint Chief Risk Officer (CRO) who has to possess adequate professional qualification / experience in risk management. CRO has to be senior official in the organization hierarchy of an NBFC.

4. NBFC to appoint a Chief Compliance Officer, who should be sufficiently senior in the organization hierarchy.

5. NBFC is required to constitute committees – (a) Risk Management Committee (Board or Executive level); (b) Audit Committee (minimum three directors, aligned with Section 177 of CA2013; (c) Nomination and Remuneration Committee (aligned with Section 178 of CA2013)

6. Prior written approval of RBI for change in the management of NBFC which would result in change in more than 30 percent of the directors.

7. Key managerial personnel (KMP) shall not hold any office (including directorships) in any other NBFC-ML or NBFC-UL (except directorship in a subsidiary).

8. An independent director cannot be on the Board of more than three NBFCs (NBFCs-ML or NBFCs-UL) at the same time.

9. Independent Director mandated to ensure no conflict of interest being on the Board of another NBFC at the same time.

10. NBFC is mandated to put in place Compensation Policy duly approved by its Board. The Compensation Policy should take into consideration issues arising out of excessive risk taking caused by misaligned compensation packages. The Policy should compulsorily take into consideration –the principles for fixed / variable pay structures; and malus / clawback provisions.

11. NRC of NBFC is expected to work in close coordination with the RMC to achieve effective alignment between compensation and risks to ensure that compensation levels are supported by the need to retain earnings of the NBFC and the need to maintain adequate capital based on internal capital adequacy assessment process.

12. The compensation of KMP and senior management needs to be reasonable, recognizing all relevant factors including adherence to statutory requirements and industry practices.

13. NBFC to frame internal guidelines on corporate governance with the approval of its Board of Directors and the same should be published on its website.

14. NBFC-UL are mandated to get mandatorily listed within three years of its identification by RBI in the Upper Layer. NBFC-UL need to follow Disclosure requirements as applicable to a listed company even before the actual listing, as per the Board-approved policy of the NBFC.

Considering the aforesaid requirements, it is necessary for the NBFCs to check the applicability of the Governance Directions and take steps to comply with the same which include expansion of Board, constituting certain committees, adopting important policies and appointment of senior officials.

Disclaimer – The views expressed in this article are the personal views of the author and are purely informative in nature.