The Reserve Bank of India (RBI) proposes asset-based NBFC classification with Rs 1 lakh crore threshold, shifting to an asset-size-based framework for identifying entities in the Upper Layer (NBFC-UL).
Key Highlights
- RBI proposes Rs 1 lakh crore asset threshold, replacing scoring model, ensuring transparent NBFC classification.
- Draft includes PSU NBFCs, expands upper layer list, strengthens regulatory oversight and financial stability.
Under the draft guidelines, NBFCs with assets of Rs 1 lakh crore or more, based on their latest audited balance sheet, will be automatically classified in the Upper Layer. This marks a departure from the earlier parametric scoring system, which relied on a mix of quantitative and qualitative factors along with supervisory judgment.
The proposed move is aimed at making the classification process more transparent, objective, and predictable. By replacing the complex scoring methodology with a clear asset threshold, the RBI intends to reduce regulatory discretion and provide certainty to market participants.
Experts say the Rs 1 lakh crore benchmark sends a strong signal to large NBFCs approaching this threshold to prepare for stricter regulatory oversight and enhanced compliance requirements.
Government-owned NBFCs to be included
In a significant shift, the RBI has also proposed bringing government-owned NBFCs under the scale-based regulatory framework. This will remove the regulatory arbitrage previously enjoyed by state-run entities compared to their private sector counterparts.
As a result, large public sector NBFCs such as Power Finance Corporation (PFC), Rural Electrification Corporation (REC), and Indian Railway Finance Corporation (IRFC) could be classified as Upper Layer NBFCs based on their size.
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Impact on existing NBFC-UL entities
Currently, the Upper Layer includes major NBFCs such as LIC Housing Finance, Bajaj Finance, Shriram Finance, Tata Capital, and Mahindra & Mahindra Financial Services. The revised framework is expected to reshape this list, potentially excluding some private NBFCs while adding large government-owned entities.
There were 15 NBFCs in the Upper Layer for FY 2024–25 under the existing framework. The number is expected to increase under the new asset-based criteria.
