If you've ever applied for a small loan and been turned down for reasons that seemed to have nothing to do with your own finances, there's a decent chance a rule buried deep in RBI regulation was part of the reason. In June 2025, the Reserve Bank of India changed that rule, and the change is still working its way through the microfinance sector now.
The rule in question governs what counts as a "qualifying asset" for an NBFC-MFI, the type of non-banking finance company that specializes in microfinance lending. Until the change, at least 75% of an NBFC-MFI's total assets had to be tied up in microfinance loans for the company to keep its licence. The RBI lowered that threshold to 60%.
What actually changed
Under the revised rule, qualifying assets now have to make up a minimum of 60% of an NBFC-MFI's total assets, net of intangible assets, and this has to hold on an ongoing basis rather than just at the point of licensing. If a lender falls below that line for four consecutive quarters, it has to submit a remediation plan to the RBI explaining how it will get back into compliance.
The RBI also tightened up the definition of what counts as a qualifying asset in the first place. It's now aligned with the broader definition of a "microfinance loan": a collateral-free loan to a household earning up to ₹3,00,000 a year. That's a meaningful detail, because it closes off some of the ambiguity that let lenders interpret the old rule loosely.
Why the threshold existed, and why it moved
The 75% rule was meant to keep NBFC-MFIs focused on their core purpose: lending to lower-income households who don't have easy access to formal credit. The worry was that without a floor, MFIs would drift toward larger, safer, more profitable loans and away from the borrowers the licence was built for.
In practice, the high threshold created a different problem. NBFC-MFIs typically keep 10 to 15% of their assets in cash and liquid investments for day-to-day operations. With 75% locked into microfinance lending, that left almost no room to diversify into anything else, even during periods when microfinance disbursement slowed down. Industry body MFIN had been pushing the RBI on this for close to three years before the threshold moved.
The lower threshold gives lenders room to build a more balanced book, including products for borrowers who are graduating out of pure microfinance into small business loans, micro-housing, or other credit needs the old rule effectively locked them out of serving.
What this means if you're the one applying
For a borrower, this shows up less as a single dramatic change and more as a gradual loosening. NBFC-MFIs now have more flexibility to hold non-microfinance assets on their books without breaching their licence conditions, which in principle means more room to underwrite loans that don't fit neatly into the old definition, and less pressure to reject an application purely to protect a compliance ratio.
It doesn't mean every NBFC-MFI will suddenly loosen its own internal underwriting. Each lender still sets its own credit policy, income checks and risk appetite on top of whatever the RBI allows. But the regulatory ceiling that used to sit above all of that just moved up, and asset-quality pressure across the sector, which had been building through FY25, is one of the reasons the RBI acted when it did.
If you're evaluating a short-term loan from any NBFC-MFI, the two things worth checking haven't changed: whether the lender is RBI-registered, and whether every fee is disclosed in the Key Fact Statement before you accept the offer. A looser qualifying asset rule changes how a lender manages its balance sheet. It doesn't change what you're entitled to see before you borrow.