Tata Sons debate: Listed middle layer NBFCs have higher advances as NPAs

However, bad assets in absolute amount are higher among listed upper layer NBFCs

As Tata Sons resists the Reserve Bank of India’s mandatory public listing rules for upper layer non-banking financial companies, a comparison of financial data reveals a paradox: While the regulator’s scrutiny of giant business groups makes news, the real concentration of bad loan stress actually sits among listed middle layer NBFCs. This is when bad assets are counted as proportion to advances. In abolute terms, listed upper layer NBFCs have higher risks. 

 

The central bank retained Tata Sons in its upper layer category under a revised ₹1-trillion asset threshold in April 2026, tagging the principal holding company of the Tata Group as a core investment company. This category of NBFCs primarily holds investments in group companies and is subject to strict listing mandates designed to contain systemic risk.

 

Under the Reserve Bank of India’s (RBI) scale-based framework — introduced in 2021 and enforced from October 2022 — NBFCs are split into four layers: Base, middle, upper and top, based on size, activity and systemic risk. To identify upper layer entities, the RBI used a scoring system weighted 70 per cent toward quantitative metrics like asset size and leverage, and 30 per cent toward qualitative factors like complexity and interconnectedness. The middle layer covered all deposit-taking NBFCs regardless of size, non-deposit-taking lenders with at least ₹1,000 crore in assets, and other specialised financial firms.

 

In April 2026, the RBI proposed replacing its scoring methodology with a simple ₹1-trillion asset threshold to identify NBFCs for the upper layer. Finalised in June 2026, the revised framework made asset size the main criterion for eligibility. Under these new rules, the RBI kept Tata Sons on its upper layer list for FY27.

 

Under both frameworks, upper and potential top layer NBFCs must list publicly to ensure systemic risks are contained.

 

The total gross non-performing assets (GNPA) of listed upper layer NBFCs stands at ₹65,692 crore — higher than the ₹47,468 crore recorded in the middle layer — highlighting potential systemic risk at the top.   

As many as five listed middle layer NBFCs — IndoStar Capital Finance, Muthoot Microfin, Five-Star Business Finance, Spandana Sphoorty Financial and Arman Financial Services — reported GNPA ratios above 2.7 per cent as of June 2026. Only three listed companies in the upper layer — Shriram Finance, Cholamandalam Investment and Finance and Mahindra & Mahindra Financial Services — had GNPA of more than 2.7 per cent. This suggests that elevated bad loan ratios are more prevalent among listed middle layer NBFCs examined for this analysis. 

 

The number of upper layer NBFCs — both listed and unlisted — stood at 15 in FY23, dropped 33 per cent to 10 in FY24 and rebounded to 15 in FY25. By contrast, middle layer NBFCs expanded rapidly, jumping 54 per cent from 319 in FY23 to 493 in FY24, before climbing further to 656 in FY25. 

 

Within the middle layer category, the industry sector accounted for 51.4 per cent of total bad loans. By contrast, retail loans drove the bulk of upper layer bad loans, making up 65.6 per cent of the total.

 

Sectoral figures reveal that middle layer NBFCs face higher bad loan ratios in industry (5.1 per cent versus 2.9 per cent for upper layer NBFCs) and services (2.3 per cent versus 1.8 per cent), while agriculture and retail ratios remain broadly comparable. Overall, these metrics show that asset-quality stress is more acute among listed middle layer NBFCs, with industrial lending posing significant stress.