Reserve Bank of India (Non-Banking Financial Companies – Governance) Directions, 2025 (Updated as on June 24, 2026)

Document text

RBI/DOR/2025-26/344 DOR.GOV.REC.No.263/18-10-013/2025-26 November 28, 2025 Previous Versions Reserve Bank of India (Non-Banking Financial Companies - Governance) Directions (Updated as on June 24, 2026) Table of Contents Chapter I - Preliminary A. Short title and commencement B. Applicability C. Definitions Chapter II – Board approved policy and review Chapter III - Directions applicable to all NBFCs A. Experience of the Board B. Risk Management Committee C. Change in Directors and / or Management Chapter IV – Directions applicable to NBFCs-Middle Layer (NBFCs-ML) and Upper Layer (NBFCs-UL) A. Constitution of Board and Appointment of Directors B. Reviews C. Committees of the Board D. Appointment of Chief Risk Officer E. Appointment of Chief Compliance Officer F. Key Managerial Personnel G. Independent Director H. Compensation of KMP and Senior Management I. Miscellaneous Instructions J. Internal Guidelines on Corporate Governance Chapter V – Directions applicable to NBFCs-Upper Layer (NBFCs-UL) Chapter VI – Repeal and other provisions A. Repeal and saving B. Application of other laws not barred C. Interpretations Annex I Annex II Annex III In exercise of the powers conferred by Sections 45JA, 45K, 45L and 45M of the Reserve Bank of India Act, 1934, Sections 29A, 30A, 31 and 32 of National Housing Bank Act, 1987, Sections 3 (read with section 31A) and 6 of Factoring Regulation Act, 2011, and all other provisions / laws enabling the Reserve Bank of India ('RBI') in this regard, RBI being satisfied that it is necessary and expedient in the public interest so to do, hereby issues the Directions hereinafter specified. Chapter-I Preliminary A. Short title and commencement 1. These Directions shall be called the Reserve Bank of India (Non-Banking Financial Companies - Governance) Directions, 2025. 2. These Directions shall come into force with immediate effect. B. Applicability 3. These Directions shall be applicable to the following Non-Banking Financial Companies (hereinafter collectively referred to as 'NBFCs' and individually as an 'NBFC'), subject to Layer-wise applicability specified in sub-paragraph (1) below: (1) NBFCs classified under the Base Layer (NBFCs-BL) shall comply with the provisions of Chapter III, those under the Middle Layer (NBFCs-ML) shall comply with Chapters II, III and IV, while those under the Upper Layer (NBFCs-UL) shall be governed by the provisions of Chapters II, III, IV, and V, unless stated otherwise. Provided that, the provisions pertaining to 'Compensation of KMP and Senior Management' as set out in paragraphs 29 to 37 of these Directions shall not apply to Government owned NBFCs. (2) The provisions of Paragraph 7 to 43 herein shall apply to the following, subject to Layer-wise applicability as mentioned in sub-paragraph (1) above: (i) NBFC-ICC registered with the RBI under the provisions of the RBI Act, 1934; (ii) NBFC-Factor registered with the RBI under the provisions of the Factoring Regulation Act, 2011; (iii) NBFC-MFI registered with the RBI under the provisions of the RBI Act, 1934; (iv) NBFC-IFC registered with the RBI under the provisions of the RBI Act, 1934; (v) IDF-NBFC registered with the RBI under the provisions of the RBI Act, 1934; (vi) HFC registered with the RBI under the provisions of the NHB Act, 1987. (3) The provisions of Paragraphs 7 to 15, 18 to 39, and 41 to 43 shall apply to a CIC registered with the RBI under the provisions of the RBI Act, 1934; (4) The provisions of Paragraphs 7(2), 7(3), 8, 9, 16 to 18, 25 to 39, and 41 to 43 shall apply to an MGC registered with the RBI under the scheme of Registration of Mortgage Guarantee Companies, subject to Layer-wise applicability as mentioned in sub-paragraph (1) above; (5) The provisions of Paragraph 7 to 9, 12 to 18, and 25 to 40 shall apply to an SPD registered with the RBI as an NBFC under the provisions of the RBI Act, 1934; (6) The provisions of Paragraphs 8, 10 to 13, 17(1) and 18 shall apply to an NBFC-AA registered with the RBI under the provisions of the RBI Act, 1934; Note: The above-mentioned Paragraphs 12, 13, 17(1) and 18 shall be applicable to an NBFC-AA, despite their categorization as NBFCs-BL under the SBR Framework. (7) The provisions of Paragraphs 8 to 13 shall apply to an NBFC-P2P registered with the RBI under the provisions of the RBI Act, 1934. Note: The above- mentioned paragraphs 12 and 13 shall be applicable to an NBFC-P2P, despite their categorization as NBFCs-BL under the SBR Framework. 4. These Directions are not applicable to an NOFHC registered with the RBI as an NBFC under the provisions of the RBI Act, 1934. Note: The applicability under these Directions is in line with the regulatory structure for NBFCs as set out in Reserve Bank of India (Non-Banking Financial Companies – Registration, Exemptions and Framework for Scale Based Regulation) Directions, 2025 . C. Definitions 5. In these directions, unless the context states otherwise, the terms herein shall bear the meanings assigned to them below: (1) 'Clawback' means a contractual agreement between the employee and the regulated entity in which the employee agrees to return previously paid or vested remuneration to the entity under certain circumstances. (2) 'Company' means a company registered under Section 3 of the Companies Act, 1956 or the corresponding provision under the Companies Act, 2013. (3) 'Director' means a director appointed on the Board of an NBFC. (4) 'Independent Director' shall be as defined in Section 149(6) of the Companies Act, 2013. (5) 'Key Managerial Personnel' shall have the meaning assigned to it under clause 51 of Section 2 of the Companies Act, 2013. (6) 'Malus' means an arrangement that permits an NBFC to prevent vesting of all or part of the amount of a deferred remuneration. Malus arrangement does not reverse vesting after it has already occurred. (7) 'Relative' shall have the meaning assigned to it under clause 77 of Section 2 of the Companies Act, 2013. (8) 'Retention period' means the period after the vesting of instruments which have been awarded as variable pay during which they cannot be sold or accessed. (9) 'Senior Management' shall have the meaning as assigned to it in 'Explanation' to Section 178 of the Companies Act, 2013. (10) 'Substantial interest' shall mean holding of a beneficial interest by an individual or his spouse or minor child, whether singly or taken together in the shares of a company, the amount paid up on which exceeds ten per cent of the paid-up capital of the company; or the capital subscribed by all the partners of a partnership firm. 6. All other expressions, unless defined herein, shall have the same meaning as have been assigned to them under the Reserve Bank of India Act, 1934 or the Companies Act, 2013 and Rules made thereunder, or any statutory modification or re-enactment thereto, or Glossary of Terms published by RBI or as used in common or commercial parlance, as the case may be. Chapter-II Board approved policy and review 7. An NBFC falling under the Middle Layer or Upper Layer shall have Board approved policies in place for the following: (1) a policy for ascertaining the 'fit and proper' status of the directors at the time of appointment, and on a continuing basis, as detailed in paragraph 12 of these Directions; (2) a policy laying down the role and responsibilities of the Chief Compliance Officer (CCO) with the objective of promoting a good compliance culture in the organization, as specified in paragraph 25(2) of these Directions; (3) a compensation policy to address issues arising out of excessive risk taking caused by misaligned compensation packages, as detailed in paragraph 29 of these Directions; and (4) reviews to be placed before the Board of the NBFC as given in paragraph 15 of these Directions. Chapter-III Directions applicable to all NBFCs A. Experience of the Board 8. At least one of the directors of an NBFC shall have relevant experience of having worked in a bank or an NBFC. B. Risk Management Committee 9. An NBFC shall constitute a Risk Management Committee (RMC) either at the Board or executive level. The RMC shall be responsible for evaluating the overall risks faced by the NBFC including liquidity risk and shall report to the Board. C. Change in Directors and / or Management 10. An NBFC shall obtain prior written permission of RBI for any change in the management of the NBFC, which would result in change in more than 30 percent of the directors, excluding independent directors. Provided that, prior approval would not be required in case of directors who get re-elected on retirement by rotation. Explanation: Notwithstanding the provision contained in paragraph 10 above, NBFCs shall continue to inform RBI (NHB in case of HFCs) regarding any change in their directors / management. 11. An NBFC shall submit an application for change in management as indicated in paragraph 10 of these Directions, on the company's letter head, for obtaining prior approval of RBI. Applications in this regard shall be submitted to RBI through PRAVAAH portal ( https://pravaah.rbi.org.in ) along with the documents (including Annex I ) indicated under the relevant process on the portal. Chapter-IV Directions applicable to NBFCs-Middle Layer (NBFCs-ML) and Upper Layer (NBFCs-UL) A. Constitution of Board and Appointment of Directors 12. An NBFC shall put in place a policy with the approval of its Board of Directors for ascertaining the 'fit and proper' status of the directors at the time of appointment, and on a continuing basis. Further, an NBFC shall institute an internal process to conduct due diligence of directors on a continuing basis. Provided that, RBI reserves the right to examine the 'fit and proper' status of directors of an NBFC irrespective of its asset size, if it so deems fit in public interest. 13. To streamline and bring in uniformity in the process of due diligence, an NBFC shall: (1) undertake a process of due diligence to determine the suitability of a person for appointment / renewal of appointment as a director on the Board, based upon qualification, technical expertise, track record, integrity and other 'fit and proper' criteria. For this purpose, the NBFC shall obtain necessary information and declaration from the proposed / existing directors in the format given at Annex II ; (2) ensure that aforementioned declarations are scrutinized by the Nomination and Remuneration Committee or Nomination Committee, as applicable, constituted as per directions set out in paragraph 18 of these Directions. Based on the information provided in the signed declaration, the Committee shall decide on the acceptance or otherwise of the Directors, where considered necessary; (3) obtain annually, as on March 31, a simple declaration from the Directors that the information already provided has not undergone change and where there is any change, ensure that requisite details are furnished by them forthwith; and (4) ensure, in public interest, that the Directors execute the Deeds of Covenants in the format given in Annex III . 14. An NBFC shall furnish to RBI (NHB in case of HFCs), on a quarterly basis, a statement on change of directors, and a certificate from its Managing Director / CEO that 'fit and proper criteria' in selection of the directors has been followed. In this regard, it shall be ensured that: (1) the statement reaches the Regional Office of the Department of Supervision of RBI (NHB in case of HFCs) where the company is registered, within 15 days of the close of the respective quarter; and (2) the statement for the quarter ending March 31, is certified by the auditors. B. Reviews 15. An NBFC shall submit to its Board of Directors at periodic intervals, as may be prescribed by the Board in this regard, the following: (1) progress made in putting in place a progressive risk management system and risk management policy and strategy followed by the NBFC; (2) conformity with corporate governance standards viz., in composition of various committees, their role and functions, periodicity of the meetings and compliance with coverage and review functions, etc. C. Committees of the Board 16. The Board of Directors of an NBFC should delineate the role of various committees. 17. Audit Committee (1) An NBFC shall constitute an Audit Committee, consisting of not less than three members of its Board of Directors. Provided that, (i) if an NBFC is required to constitute an Audit Committee under Section 177 of the Companies Act, 2013, then the Audit Committee so constituted shall be treated as the Audit Committee for the purpose of this paragraph; and (ii) the Audit Committee constituted under this paragraph shall have the same powers, functions and duties as laid down in Section 177 of the Companies Act, 2013. (2) The Audit Committee of an NBFC shall ensure that an Information System Audit of the internal systems and processes is conducted as per the periodicity prescribed in Reserve Bank of India (Non-Banking Financial Companies – Managing Risks in Outsourcing) Directions, 2025 , as amended from time to time, to assess operational risks faced by the NBFC. 18. Nomination and Remuneration Committee (1) An NBFC shall form a Nomination and Remuneration Committee (NRC) which shall have the constitution, powers, functions and duties as laid down in Section 178 of the Companies Act, 2013. Provided that, (i) if an NBFC is required to constitute NRC under Section 178 of the Companies Act, 2013, the NRC so constituted by it shall be treated as the NRC / Nomination Committee for the purpose of this paragraph; and (ii) a Government-owned NBFC shall, in lieu of the requirement under this paragraph, form a Nomination Committee to ensure 'fit and proper' status of proposed and existing directors, and such Committee shall have the same powers, functions and duties as laid down in Section 178 of the Companies Act, 2013. D. Appointment of Chief Risk Officer 19. An NBFC with an asset size of more than ₹5,000 crore shall appoint a Chief Risk Officer (CRO) with clearly specified role and responsibilities. 20. The CRO shall be a senior official in the hierarchy of an NBFC and shall possess adequate professional qualification / experience in risk management. 21. The CRO of an NBFC shall function independently to ensure highest standards of risk management and the Board shall put in place policies to safeguard such independence. For this purpose, it shall be ensured that: (1) the CRO shall have direct reporting lines to the MD&CEO / Risk Management Committee of the Board (RMCB); (2) in case the CRO reports to the MD&CEO, the RMC / Board shall meet the CRO without the presence of the MD&CEO, at least on a quarterly basis; (3) the CRO shall not have any reporting relationship with the business verticals and shall not be given any business targets; and (4) there shall not be any 'dual hatting' i.e., the CRO shall not be given any other responsibility. 22. The CRO of an NBFC shall be appointed for a fixed tenure with the approval of the Board and may be transferred / removed from their post before completion of the tenure only with the approval of the Board. Such premature transfer / removal shall be reported to the Department of Supervision of the Regional Office of RBI (NHB in case of HFCs) under whose jurisdiction the NBFC is registered. In case the NBFC is listed, any change in incumbency of the CRO shall also be reported to the stock exchanges. 23. The CRO of an NBFC shall be involved in the process of identification, measurement and mitigation of risks. All credit products (retail or wholesale) of an NBFC shall be vetted by its CRO from the angle of inherent and control risks. The CRO's role in deciding credit proposals shall be limited to being an advisor. 24. In an NBFC that follows committee approach in credit sanction process for high value proposals, if the CRO is one of the decision makers in the credit sanction process, the CRO shall have voting power and all members who are part of the credit sanction process, shall individually and severally be liable for all the aspects, including risk perspective related to the credit proposal. E. Appointment of Chief Compliance Officer 25. In order to ensure an effective compliance culture, it is necessary to have an independent compliance function and a strong compliance risk management framework in NBFCs. In this regard, an NBFC shall, (1) appoint a Chief Compliance Officer (CCO), who should be sufficiently senior in the organization hierarchy; and (2) put in place a Board approved policy laying down the role and responsibilities of the CCO with the objective of promoting better compliance culture in the organization. F. Key Managerial Personnel 26. Except for directorship in a subsidiary, Key Managerial Personnel (KMP) of an NBFC shall not hold any office (including directorships) in any other NBFC-ML or NBFC-UL. Explanation: Such KMP may assume directorship in NBFCs-BL. G. Independent Director 27. Within the permissible limits in terms of Companies Act, 2013, an independent director shall not be on the Board of more than three NBFCs (NBFCs-ML or NBFCs-UL) at the same time. This restriction shall not apply in respect of directorships held in NBFCs-BL, subject to compliance with the applicable provisions of the Companies Act, 2013. 28. The Board of an NBFC shall ensure that there is no conflict arising out of its independent director/s being on the Board of another NBFC at the same time. H. Compensation of KMP and Senior Management 29. An NBFC shall put in place and adhere to a Board-approved compensation policy to address issues arising out of excessive risk taking caused by misaligned compensation packages. The policy shall, at the minimum, include: (1) principles for fixed / variable pay structures; and (2) malus / clawback provisions. 30. The NRC of an NBFC, constituted in accordance with the provisions of paragraph 18 of these Directions, shall, inter alia, also have the mandate to oversee the framing, review and implementation of its Board-approved compensation policy. 31. Further, the NRC may: (1) work in close coordination with the RMC to achieve effective alignment between compensation and risks; (2) 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 (ICAAP); and (3) ensure 'fit and proper' status of proposed and existing directors and that there is no conflict of interest in appointment of directors, KMP and senior management. 32. The guidelines are intended only for providing broad guidance to NBFCs and their NRCs in formulating their compensation policy. While formulating the compensation policy, it has to be ensured that all statutory mandates and the rules and directions issued under them are fully complied with. 33. Components and risk alignment: The compensation of Key Managerial Personnel (KMPs) and senior management needs to be reasonable, recognizing all relevant factors including adherence to statutory requirements and industry practices. The compensation packages may comprise fixed and variable pay components aligned effectively with prudent risk taking to ensure that compensation is adjusted for all types of risks, the compensation outcomes are symmetric with risk outcomes, compensation pay-outs are sensitive to the time horizon of the risks, and the mix of cash, equity and other forms of compensation are consistent with risk alignment. 34. Composition of Fixed Pay: An NBFC may treat all the fixed items of compensation, including the perquisites and contributions towards superannuation / retiral benefits, as part of fixed pay. All perquisites that are reimbursable may also be included in the fixed pay so long as there are monetary ceilings on these reimbursements. Monetary equivalent of benefits of non-monetary nature (such as free furnished house, use of company car, etc.) may also be part of fixed pay. 35. Principles for Variable Pay: An NBFC may adhere to the following principles for variable pay of its KMP and senior management: (1) Composition of Variable Pay: The variable pay may be in the form of share-linked instruments, or a mix of cash and share-linked instruments. It shall be ensured that the share-linked instruments are in conformity with relevant statutory provisions. (2) Proportion: The proportion of variable pay in total compensation, which includes fixed and variable pay, needs to be commensurate with the role and prudent risk-taking profile of KMP / senior management. At higher levels of responsibility, the proportion of variable pay needs to be higher. There shall be proper balance between the cash and share-linked instruments in the variable pay. The variable pay should be truly and effectively variable such that it may be reduced to zero based on performance at an individual, business-unit and company-wide level. In order to do so, performance measures and their relation to remuneration packages shall be clearly defined at the beginning of the performance measurement period to ensure that the employees are well aware of the incentive mechanism. (3) Deferral of variable pay: Not all the variable pay awarded after performance assessment may be paid immediately. Certain portion of variable pay, as decided by the Board of the NBFC, may be deferred to time horizon of the risks. The portion of deferral arrangement may be made applicable for both cash and non-cash components of the variable pay. Deferral period for such an arrangement shall be decided by the Board of the NBFC. (4) Control and assurance function personnel: KMP and senior management engaged in financial control, risk management, compliance and internal audit may be compensated in a manner that is independent of the business areas they oversee and commensurate with their key role in the NBFC. Accordingly, such personnel may have higher proportion of fixed compensation. However, a reasonable proportion of compensation may be in the form of variable pay, so that exercising the options of malus and / or clawback, when warranted, is not rendered infructuous. 36. Guaranteed bonus: An NBFC may not pay guaranteed bonus to KMP and senior management. However, in the context of new hiring, joining / sign-on bonus may be considered. Such bonus shall neither be considered part of the fixed pay nor of variable pay. 37. Malus / Clawback: The deferred compensation to KMP and senior management of an NBFC may be subject to malus and / or clawback arrangements in the event of subdued or negative financial performance of the NBFC and / or the relevant line of business or employee misconduct in any year. For this purpose, a representative set of situations may be identified by the NBFC, which require them to invoke the malus and clawback clauses that may be applicable on entire variable pay. While setting criteria for the application of malus and clawback, the NBFC may also specify a period during which malus and / or clawback can be applied, covering at least the deferral and retention periods. I. Miscellaneous Instructions 38. An NBFC shall formulate a whistle blower mechanism for its directors and employees to report genuine concerns. 39. The Board of an NBFC shall ensure good corporate governance practices in the subsidiaries of the NBFC. J. Internal Guidelines on Corporate Governance 40. An NBFC shall frame internal guidelines on corporate governance with the approval of its Board of Directors, enhancing the scope of these Directions but without sacrificing the spirit underlying the provisions of this Chapter and it shall be published on the company's website, if any, for the information of various stakeholders. Chapter-V Directions applicable to NBFCs-Upper Layer (NBFCs-UL) 41. An NBFC shall ensure that its Board members are competent to manage its affairs. Hence, the composition of the Board shall ensure mix of educational qualification and experience within the Board. Specific expertise of Board members shall be a prerequisite, depending on the type of business pursued by the NBFC. 42. An NBFC shall be required to report to the supervisors in case any Independent Director is removed / resigns before completion of his normal tenure. 43. An NBFC-UL shall be mandatorily listed within three years of its identification by RBI in the Upper Layer. Disclosure requirements shall be put in place on the same lines as applicable to a listed company even before the actual listing, as per the Board-approved policy of the NBFC. 1 [Provided that these provisions shall not be applicable to NBFC-UL which are fully owned and controlled by Government.] Chapter-VI Repeal and other provisions A. Repeal and saving 44. With the issue of these Directions, the existing Directions, instructions, and guidelines relating to governance as applicable to Non-Banking Financial Companies covered under these Directions stand repealed, as communicated vide circular DOR.RRC.REC.302/33-01-010/2025-26 dated November 28, 2025 . The Directions, instructions, and guidelines repealed prior to the issuance of these Directions shall continue to remain repealed. 45. Notwithstanding such repeal, any action taken or purported to have been taken, or initiated under the repealed Directions, instructions, or guidelines shall continue to be governed by the provisions thereof. All approvals or acknowledgments granted under these repealed Directions / instructions / guidelines shall be deemed as governed by these Directions. Further, the repeal of these directions, instructions, or guidelines shall not in any way prejudicially affect: (1) any right, obligation or liability acquired, accrued, or incurred thereunder; (2) any, penalty, forfeiture, or punishment incurred in respect of any contravention committed thereunder; (3) any investigation, legal proceeding, or remedy in respect of any such right, privilege, obligation, liability, penalty, forfeiture, or punishment as aforesaid; and any such investigation, legal proceedings or remedy may be instituted, continued, or enforced and any such penalty, forfeiture or punishment may be imposed as if those directions, instructions, or guidelines had not been repealed. B. Application of other laws not barred 46. The provisions of these Directions shall be in addition to, and not in derogation of the provisions of any other laws, rules, regulations, or directions, for the time being in force. C. Interpretations 47. For the purpose of giving effect to the provisions of these Directions or in order to remove any difficulties in the application or interpretation of the provisions of these Directions, the RBI may, if it considers necessary, issue necessary clarifications in respect of any matter covered herein and the interpretation of any provision of these Directions given by the RBI shall be final and binding. (Manoranjan Padhy) Chief General Manager 1 Inserted vide Reserve Bank of India (Non-Banking Financial Companies – Governance) Amendment Directions, 2026 dated June 24, 2026 .