RBI Specifies ₹1 Lakh Crore as Asset Criterion for NBFC Upper Layer Category

The Reserve Bank of India (RBI) has made it easier to classify Non-Banking Financial Companies (NBFCs) falling under its Upper Layer classification norm. Under the revised framework, NBFCs with total assets of ₹1 lakh crore or more, based on their latest audited financial statements, will automatically be classified as NBFC-Upper Layer (NBFC-UL).

The central bank announced the changes on June 25 after reviewing feedback received on draft proposals issued in April regarding the identification methodology for Upper Layer NBFCs and the treatment of government-owned NBFCs.

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Shift to Asset-Based Classification

The revised norms replace the earlier methodology with a straightforward asset-size criterion. Any NBFC meeting the ₹1 lakh crore asset threshold will now be included in the Upper Layer category.

RBI said the identification criteria will be reviewed periodically, while the asset threshold itself will be reassessed every three years.

The central bank regulates NBFCs under a scale-based framework that classifies entities into four categories: Base Layer, Middle Layer, Upper Layer and Top Layer. The framework is designed to align regulatory requirements with the size, risk profile and systemic importance of individual NBFCs.

Government-Owned NBFCs Included

As part of the revised approach, eligible government-owned NBFCs will also be considered for inclusion in the Upper Layer category.

RBI said certain exemptions previously granted to government-owned NBFCs relating to credit concentration and investment concentration norms will be withdrawn under the updated framework.

The move brings regulatory treatment closer to that applicable to private sector NBFCs operating at a similar scale.

Additional Rules for Bank-Linked NBFCs

The central bank also clarified the treatment of NBFCs that are part of banking groups.

According to RBI, where both a scheduled commercial bank and its NBFC subsidiary undertake similar business activities, the NBFC will be required to comply with the applicable provisions governing such operations.

These requirements will apply regardless of the NBFC’s classification under the scale-based framework.

Classification and Regulation May Differ

RBI noted that layer classification and applicable regulations may not always be identical.

For instance, an Infrastructure Debt Fund-NBFC (IDF-NBFC) that is part of a scheduled commercial bank group may continue to be classified under the Middle Layer structure. Nevertheless, it might remain necessary to adhere to regulations governing the Upper Layer, except for the listing requirement.

This revamped structure is meant to provide a more transparent and predictable approach to determining which NBFCs are considered systemically important as well as ensuring regulatory supervision keeps up with the growth of the financial sector.