RBI likely to increase the number of NBFCs under upper layer list

RBI may expand the upper layer of NBFCs amid rising size and interconnectedness, bringing more large public and private sector NBFCs under enhanced regulatory norms

The Reserve Bank of India (RBI) is likely to increase the number of non-banking financial companies (NBFCs) classified under the upper layer, which are subject to enhanced regulatory requirements, sources said. This comes as some of these entities have grown in size and their interconnectedness with the broader financial sector has increased. 

The sources added that some of big public-sector NBFCs may be added to the upper layer list. Some of them have a loan book of over ₹5 trillion. Though much less in number, such entities had a substantial share in NBFC sector’s total assets.

  NBFCs of large industrial groups, Indian subsidiaries of foreign financial houses interconnected with the banking sector, housing finance subsidiaries of large NBFCs are likely to be brought under the upper layer. 

According to the RBI’s scale-based regulation framework that came into effect from October 2022, NBFCs are categorised into four layers: base layer, middle layer, upper layer, and top layer. 

While the upper layer had 15 NBFCs — which include the likes of Bajaj Finance, Tata Capital, Mahindra Finance, Shriram Finance, among others — the middle layer had 493 such entities until the end of 2024-25. The base layer has close to 9,000 NBFCs. 

The RBI has said the top layer will ideally remain empty, and will get populated if the regulator is of the opinion that there is a substantial increase in the potential systemic risk from specific NBFCs in the upper layer. Such NBFCs then move to the top layer from the upper layer. 

Upper layer NBFCs are identified by a parametric scoring methodology comprising quantitative metrics, qualitative factors, and supervisory judgment. Once classified as an upper layer, an NBFC is subject to enhanced regulatory requirements for at least five years from its classification in the layer, even if it later does not meet the parametric criteria. 

Sources said some of the NBFCs have grown in size to cross the ₹50,000 crore loan book mark, which acts like a cut-off to become an upper layer.

 

Growing interconnectedness of some of the entities with the financial sector is also a reason for increasing the list of upper layer NBFCs. 

Typically, the top 50 NBFCs – excluding the top 10 NBFCs by asset size, which automatically fall in the upper layer -- based on total exposure, including credit equivalent of off balance sheet exposure, can be a part of the upper layer. 

According to RBI norms, an unlisted upper layer NBFC has to list in the bourses within three years. This year saw the listing of Tata Capital and HDB Financial, which were identified as upper layer NBFCs three years ago.