What Happened
- The Reserve Bank of India released draft directions proposing to replace the existing complex methodology for identifying Upper Layer NBFCs with a simple absolute asset-size criterion of ₹1 lakh crore and above.
- Under the proposal, any NBFC with total assets of ₹1 lakh crore or more as per its latest audited balance sheet would automatically be classified as an Upper Layer NBFC (NBFC-UL), regardless of scoring parameters.
- The draft also proposes including eligible government-owned NBFCs in the Upper Layer list, a departure from the current practice that largely exempted them, in pursuit of an ownership-neutral regulatory regime.
- The change has significant implications for Tata Sons — currently classified as a Core Investment Company (CIC) and in the Upper Layer — which had been considering restructuring to avoid mandatory listing requirements that apply to NBFC-ULs.
Static Topic Bridges
Scale-Based Regulation (SBR) Framework for NBFCs
The Reserve Bank introduced the Scale-Based Regulatory (SBR) framework for NBFCs in October 2021, moving away from activity-based to size-and-risk-based regulation. The framework divides NBFCs into four layers: Base Layer (NBFC-BL), Middle Layer (NBFC-ML), Upper Layer (NBFC-UL), and Top Layer (NBFC-TL).
- Base Layer: NBFCs with assets below ₹1,000 crore and non-deposit taking with no public funds; regulated lightly.
- Middle Layer: All deposit-taking NBFCs and non-deposit NBFCs with assets ≥ ₹1,000 crore; enhanced regulation.
- Upper Layer: Systemically important NBFCs identified through a two-pronged method — top 10 eligible NBFCs by asset size AND parametric scoring. Currently 15 NBFCs are in this layer.
- Top Layer: Reserved for entities posing extreme systemic risk; currently empty.
- NBFC-ULs face bank-like regulation including mandatory listing within three years of classification.
Connection to this news: The RBI is simplifying the UL identification to a single absolute threshold (₹1 lakh crore assets), replacing the existing scoring-based method that critics called opaque and inconsistent.
Core Investment Companies (CICs) and NBFC Listing Requirements
A Core Investment Company is a non-banking financial company that holds at least 90% of its net assets in equity shares, preference shares, bonds, debentures, or loans in group companies, and does not carry on any other financial activity. Tata Sons is registered as a CIC.
- CICs with assets ≥ ₹100 crore are systemically important and require RBI registration.
- NBFC-UL entities are required to list on a recognised stock exchange within three years of being classified as Upper Layer.
- Tata Sons has resisted listing, as listing would make group ownership structure public and subject it to market disclosure norms.
- The proposed absolute asset-size criterion does not grant exemptions to CICs, meaning Tata Sons would remain in the Upper Layer.
Connection to this news: The ownership-neutral language in the draft closes the potential route for government NBFCs to stay outside the UL perimeter, while the absolute threshold removes scoring-based flexibility that entities might have used to exit the UL classification.
Ownership-Neutral Regulation Principle
Ownership-neutral regulation means the RBI applies identical prudential norms to similarly sized entities regardless of whether they are privately owned, government-owned, or foreign-owned. This principle was articulated in the Kamath Committee and various RBI discussion papers on NBFC regulation.
- Government-owned NBFCs like REC, PFC, and NHB have historically operated under lighter oversight due to sovereign backing.
- Inclusion in NBFC-UL subjects them to enhanced disclosure, governance, and capital adequacy requirements comparable to large private NBFCs.
- The draft proposes bringing eligible PSU NBFCs above ₹1 lakh crore under the same Upper Layer framework.
Connection to this news: By proposing to extend Upper Layer norms to government NBFCs, the RBI is asserting that systemic importance — not ownership — should drive regulatory intensity.
Key Facts & Data
- Current NBFC-UL list (as of March 2025): 15 NBFCs, including Bajaj Finance, LIC Housing Finance, Tata Sons, Shriram Finance, and others.
- Proposed threshold: Total assets ≥ ₹1,00,000 crore (₹1 lakh crore) as per latest audited balance sheet.
- Current identification method: Top 10 eligible NBFCs by asset size + parametric scoring methodology.
- NBFC-UL entities must list within 3 years of classification; face bank-like prudential norms including LCR requirements.
- SBR framework was introduced via RBI circular of October 22, 2021.
- Top Layer remains empty — intended for entities posing extreme systemic risk.