 "Reserve Bank of India, RBI")
The Reserve Bank of India (RBI) announced on Thursday the names of 15 non-banking financial companies (NBFCs) placed under the upper layer as per scale-based regulation (SBR) for 2023-24.
TMF Business Services (formerly Tata Motors Finance), eligible for categorisation under the upper layer, is not included in the current list due to ongoing business reorganisation, said the regulator.
Some of the NBFCs in the upper layer include LIC Housing Finance, Bajaj Finance, and Tata Sons.
3 *Shriram Finance (formerly Shriram Transport Finance Company)
4 #Tata Sons Private Limited
5 L & T Finance
6 Piramal Capital & Housing Finance
7 Cholamandalam Investment and Finance Company
8 Indiabulls Housing Finance
9 *Mahindra & Mahindra Financial Services
10 Tata Capital Financial Services
11 *PNB Housing Finance
12 HDB Financial Services
13 Aditya Birla Finance
14 Muthoot Finance
15 Bajaj Housing Finance Ltd.
*Deposit taking NBFC
#Core Investment Company
Source: RBI
NBFCs have witnessed significant growth in size and interconnectedness in recent years, prompting the regulator to introduce SBR for these entities in October 2021.
The SBR framework encompasses various aspects of NBFC regulation, including capital requirements, governance standards, and prudential regulation, among others.
Under this framework, NBFCs are categorised into four layers based on their size, activities, and perceived riskiness.
The base layer primarily consists of non-deposit-taking NBFCs with assets below Rs 1,000 crore engaged in activities such as peer-to-peer lending, account aggregation, and non-operative financial holding companies.
The middle layer comprises all deposit-taking NBFCs and non-deposit-taking NBFCs with assets exceeding Rs 1,000 crore.
The upper layer includes NBFCs specifically identified by the RBI as warranting enhanced regulatory requirements based on a set of parameters and scoring methodology.
According to the RBI, the top 10 eligible NBFCs in terms of asset size will always reside in the upper layer, regardless of other factors.
Once an NBFC is classified in the upper layer, it becomes subject to enhanced regulatory requirements for at least five years, even if it fails to meet the parametric criteria in subsequent years.
The RBI said that the top layer should ideally remain empty but could be populated if the Reserve Bank perceives a substantial increase in potential systemic risk from specific NBFCs in the upper layer. In such cases, these NBFCs will transition from the upper layer to the top layer, as stipulated in the 2021 norms.
