NBFC

RBI’s 2026 NBFC Concentration Risk Framework: What NBFCs Need to Know 

The Reserve Bank of India (RBI) has long been monitoring the risk management of Non-Banking Financial Companies (NBFCs) to maintain the stability of India’s financial system. This ensures that excessive risk in lending is not concentrated in any single entity or project. 

The RBI announced amendments to the concentration risk regulations for NBFCs on January 1, 2026. It was observed that some infrastructure projects were unable to receive sufficient funding from NBFCs due to the limitations imposed by the old regulations. 

So, the RBI has introduced the concept of “High Quality Infrastructure Loans.” This new classification under NBFC Concentration Risk Management Directions, 2025 (amendment) will directly impact NBFCs, infrastructure lenders, and project implementing agencies. This article will explain these new regulations and highlight their practical implications. 

What is the Concentration Risk in NBFC Lending and its Importance? 

Concentration risk refers to the situation where an NBFC invests in a large portion of its total loans in a single borrower, a group, a sector, or a specific type of project. In such a situation, problems in a single area can have a significant impact on the entire institution’s financial health. 

This risk typically manifests in two ways: single borrower exposure and group borrower exposure. Additionally, over-reliance on a specific sector, such as infrastructure or real estate, also increases the risk. 

NBFCs are more vulnerable to this risk compared to banks because they have limited sources of funding, and their liquidity management is more sensitive. It puts immediate pressure on the NBFC’s capital and cash flow if a large loan becomes stressed. NBFC license holders should know about the concentration risk to mitigate them.  

The RBI had issued the NBFC Concentration Risk Management Directions, 2025, to control this risk. These directions set lending limits linked to the NBFC’s capital. However, the previous framework lacked separate recognition for stable and high-quality projects, which necessitated these new amendments. 

RBI’s Revised NBFC Concentration Risk Norms 2026 

The revised guidelines issued by the RBI on January 1, 2026, introduce a pragmatic change in the management of concentration risk for NBFCs. These revisions will work in conjunction with the previous regulations and are primarily designed to align with the capital adequacy revisions. 

According to the new rules, the revised framework will come into effect from the date the NBFC’s capital adequacy changes become effective, or April 1, 2026. This will provide institutions with sufficient time to prepare. 

This change assesses risk based on the quality and stability of projects, rather than treating all infrastructure loans uniformly. The RBI is moving away from a “one-size-fits-all” approach towards quality-based exposure limits. 

What are High Quality Infrastructure Loans? 

The RBI has introduced the “High-Quality Infrastructure Loan” category to identify high-quality, stable infrastructure projects. Many infrastructure projects were classified as high-risk under the old regulations, even after completing the construction phase and generating regular income. 

Ordinary infrastructure loans may involve projects that are still under construction or have uncertain income streams. High-quality infrastructure loans apply to projects that are already operational and stable. 

This provides regulatory relief for NBFCs. The RBI views lending to such projects as comparatively less risky. Consequently, NBFCs can take relatively higher exposure to a single borrower or group if certain conditions are met. This will be helpful in long-term infrastructure financing. 

Eligibility Criteria for High-Quality Infrastructure Projects 

The RBI has clearly stated that not all infrastructure projects will be considered high-quality. This benefit will only be available if certain stringent conditions are met.  

Operational Track Record Requirement

• The project must have been commercially operational for at least one year. 

• Projects under construction or partially operational are not acceptable. 

• The project’s operations must be stable this year. 

• An operational history facilitates project risk assessment. 

• This acts as an important risk filter from the RBI’s perspective. 

Loan Performance and Asset Classification

• The loan must be classified as a Standard Asset in the NBFC’s books. 

• There should be no defaults or stress of any kind. 

• Restructured loans will not fall under this category. 

• Timely payment of interest and installments is mandatory. 

• This ensures the borrower’s financial discipline. 

Compliance with Loan Covenants

• No significant loan covenants should be violated. 

• Compliance with financial and operational conditions is essential. 

• This brings transparency to project management. 

• It strengthens the NBFC’s control and oversight. 

Revenue Stability and Predictability

• The project’s revenue must be regular and predictable. 

• Dependence on excessive market fluctuations should be minimal. 

• Stable cash flow reduces loan risk. 

• This is crucial for long-term financing. 

Government-Backed Contracts and Revenue Visibility 

The RBI has placed special emphasis on the source of revenue in this amendment. The revenue of high-quality infrastructure projects must come from government-backed concessions or contracts. The contracting authority can be: 

• The Central Government 

• A State Government 

• A Statutory or Regulatory Authority 

The rights must be maintained throughout the entire concession period if the borrower fulfills its obligations. This reduces the risk of a sudden cessation of project revenue. 

This condition is important for road, port, power transmission, and urban infrastructure projects, as the government’s role is directly involved in these sectors. Government-backed contracts make cash flows much more predictable, which helps reduce risk for NBFCs. 

Mandatory Lender Protection Mechanism 

The RBI’s new regulations place special emphasis on lender protection. The presence of escrow and trust-retention account mechanisms is mandatory for every high-quality infrastructure project. 

All project revenues are deposited into a designated account, which makes the loan obligations first. This ensures that the project’s cash flow is protected separately, a process commonly known as ring-fencing. 

Furthermore, the agreement must include clear protection mechanisms to address situations where the project is terminated prematurely for any reason. This helps to limit potential losses. 

These protection measures mitigate the risks for NBFCs even if unexpected problems arise in the project. So, this increases lender confidence and encourages stable infrastructure financing. 

Borrower’s Financial Capacity and Restrictive Covenants 

The RBI has clearly stated that the financial capacity of the borrower is crucial for high-quality infrastructure projects. The borrower must maintain adequate fund management to ensure that current operations and future needs are met without disruption. This funding can be from internal sources or external financing. 

NBFCs will be responsible for realistically assessing the project’s working capital requirements and future funding needs. 

Furthermore, there will be strict restrictions on taking on additional debt without the lender’s permission. No decisions can be made regarding the project’s assets or income that would jeopardize the lender’s interests. These restrictive covenants primarily protect the lender’s interests and help control credit risk. 

Comparative Table: Regular Infrastructure Loans vs High-Quality Infrastructure Loans 

Parameter	Regular Infrastructure Loan	High-Quality Infrastructure Loan
Project Stage	Construction or operational	Minimum 1 year operational
Asset Classification	May vary	Must be standard
Revenue Source	Market-linked	Government-linked
Cash Flow Protection	Limited	Escrow-based
Exposure Benefit	No special relaxation	Eligible for higher exposure

Impact of the Revised Framework on NBFCs 

There are several important impacts of the revised framework on NBFCs below-  

• Use of Risk-Adjusted Capital: NBFCs will now be able to deploy capital with greater confidence in high-quality projects. 

• Increased Opportunities for Lending to Stable Projects: This will open the way for taking on relatively higher exposure in high-quality projects. 

• Improvement in Portfolio Quality: The proportion of lower-risk assets will increase. 

• Increased Compliance and Documentation Burden: Meeting the new requirements will necessitate additional oversight and documentation. 

• Strategic Shift in Infrastructure Financing: NBFCs will now focus more on operational projects rather than construction-phase projects. 

Impact on Infrastructure Borrowers and Developers 

These revised rules send a clear message to infrastructure project managers. Achieving operational stability quickly will increase financing opportunities. There will be increased emphasis on maintaining consistent revenue from the start of project operations. 

Contract structuring will become even more important than before, particularly in relation to government concessions and revenue protection. Properly structured contracts will make it easier to obtain long-term financing from NBFCs. 

However, compliance expectations will also increase. Regular reporting, adherence to covenants, and maintaining transparency will become even more crucial. 

Effective Date and Compliance Preparedness 

The RBI has stated that this revised framework will come into effect on April 1, 2026. 

Actions for NBFCs: 

• Re-evaluate internal policies and exposure limits 

• Review existing infrastructure loans 

• Update documentation and covenant structures 

• Strengthen risk management processes 

• Proactive preparation will help mitigate future regulatory risks. 

Conclusion 

The RBI’s revised concentration risk framework emphasizes risk control while opening avenues for financing stable infrastructure projects. It strikes a balance between growth and security. 

The high-quality infrastructure loans encourage NBFCs to lend in a more disciplined and structured manner. It motivates project developers to focus on long-term sustainability. Accurate interpretation and compliance support are the most important in this evolving regulatory environment.  

If you are looking for expert assistance to NBFCs in compliance assessments, exposure structuring, and developing RBI-compliant lending frameworks, Enterslice can be the perfect partner. We can also help you understand the new regulations and capitalize on business opportunities. So, contact us today for expert assistance.  

All You Need To About NBFC Concentration Risk Framework