The Reserve Bank of India (RBI) has proposed a major overhaul of the framework used to classify upper layer non-banking financial companies (NBFCs), introducing a Rs 1 lakh crore asset size threshold as the primary criterion for identification.
Under the draft amendment to the Scale-Based Regulatory (SBR) framework, NBFCs with asset sizes of Rs 1 lakh crore and above would be categorised as upper layer (NBFC-UL) entities. This marks a shift from the existing two-pronged methodology that combined asset size and a parametric scoring system.
The central bank has also proposed including government-owned NBFCs in the upper layer classification, aligning with its broader objective of maintaining an ownership-neutral regulatory regime. Currently, such entities are placed in the Base Layer or Middle Layer and are excluded from upper layer categorisation.
Despite the proposed shift to a more transparent and absolute asset-based criterion, the RBI said parametric scoring would continue to play a role in identifying systemically important NBFCs. The methodology assigns a 70% weightage to quantitative parameters and 30% to qualitative factors. Additionally, the top 50 NBFCs based on total exposure would automatically be considered for inclusion in the upper layer.
In addition, Upper layer NBFCs will be identified periodically and Rs 1 lakh crore asset size threshold will be reviewed every five years.
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As part of the regulatory tightening, NBFCs classified in the upper layer will be required to comply with enhanced prudential norms within a two-year transition period. This is aimed at strengthening risk management and ensuring financial stability in the sector.
In another key proposal, the RBI has allowed upper layer NBFCs to use state government guarantees as a credit risk transfer instrument without any cap, subject to specified conditions. This move is expected to improve credit flow while maintaining safeguards.
The RBI has invited feedback from NBFCs, stakeholders, and the public on the draft amendment directions until May 4, 2026. The proposed changes are part of the regulator's ongoing efforts to simplify classification norms, enhance transparency, and better align regulatory oversight with the scale and systemic importance of large NBFCs.
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