RBI proposes ₹1 Lakh crore asset threshold for NBFC Upper Layer classification.

RBI proposes ₹1 Lakh crore asset threshold for NBFC Upper Layer classification.

• Under the proposed overhaul, NBFCs in the upper layer, which are tightly regulated and supervised by RBI, will comprise those with assets of ₹1 lakh crore and above as per the latest audited balance sheet for the financial year.
• Further, government-owned NBFCs will be brought under the Framework for scale-based Regulation of NBFCs, removing the arbitrage they enjoyed vis-à-vis private sector NBFCs, per the draft RBI guidelines.
• So, State-owned NBFCs such as PFC, REC, and IRFC could be classified as NBFC-UL.
• Currently, the Upper Layer is populated with NBFCs, identified by way of a parametric scoring methodology, comprising quantitative and qualitative parameters as well as supervisory judgment. This includes those with an asset size of less than ₹1 lakh crore.
• There were 15 NBFCs in the Upper Layer under RBI’s scale-based regulation for the year 2024-25. It included LIC Housing Finance, Bajaj Finance, Shriram Finance, Tata Sons, Cholamandalam Investment and Finance, Tata Capital, Mahindra & Mahindra Financial Services, Aditya Birla Finance and Muthoot Finance, among others.
• However, it is not clear from the draft directions if consolidated assets of an NBFC, which has subsidiaries, will be considered under the proposed asset size criteria for classifying it as an Upper Layer NBFC.
• The inclusion of government-owned entities, too, based on their size, indicates a more harmonised way of identifying NBFC-UL. Based on the existing position, the number of NBFC-UL would go up.
• As per the Draft Directions, the criteria for identification of NBFC-UL shall be reviewed periodically.
• Further, the asset size threshold for identification of NBFC-UL shall be reviewed every five years.
• A Non-Banking Financial Company (NBFC) in India is a company registered under the Companies Act (1956 or 2013) that provides banking-like services—such as loans, advances, and investment—but does not hold a full banking license, notes the Reserve Bank of India.
• NBFCs are regulated by the RBI and classified into four layers based on risk and size: Base, Middle, Upper, and Top.
• NBFCs cannot accept demand deposits (savings/current accounts) or offer checkbooks.