RBI introduces automatic classification for Upper Layer NBFCs
The Reserve Bank of India (RBI) has issued a revised framework for identifying Upper Layer Non-Banking Financial Companies (NBFC-ULs). According to the new norms, NBFCs with an asset size of Rs 1 lakh crore and above will automatically be classified in the Upper Layer category. The revised framework aims to establish a transparent, simple, and objective methodology for identifying systemically important NBFCs.
The central bank's decision could strengthen the case for the public listing of Tata Sons, the principal holding company of the Tata Group. With an estimated asset base of around Rs 1.75 lakh crore, Tata Sons comfortably exceeds the threshold and is likely to remain classified as an Upper Layer NBFC. The RBI's move narrows the scope for Tata Sons to avoid Upper Layer classification and could reinforce listing-related regulatory requirements applicable to such entities. Tata Sons has been seeking regulatory relief through its application to surrender its registration as a Core Investment Company (CIC).
Revised norms effective June 24
The RBI said the threshold will now be reviewed every three years, instead of every five years as proposed in the draft framework. The revised norms came into effect on June 24. Additionally, government-owned NBFCs that meet the eligibility criteria will now be considered for inclusion in the Upper Layer category. However, such entities will not be required to list on stock exchanges.
Under the scale-based regulatory framework, entities classified in the Upper Layer are subject to enhanced regulatory oversight and stricter compliance requirements. The RBI has replaced the earlier parameter-based assessment model with an absolute asset-size criterion, making the classification process more predictable and easier to administer.
Impact on financial stability
The central bank said the revised framework is intended to strengthen the supervision of large and systemically important NBFCs while enhancing financial stability across the sector. According to the new norms, the RBI will use an asset-size criterion of Rs 1 lakh crore and above to identify NBFCs that may be considered for inclusion in the Upper Layer category.
The move is expected to increase regulatory pressure on large NBFCs, particularly those that have been seeking to avoid stricter oversight. For Tata Sons, the revised framework could intensify demands for a public listing, as Upper Layer NBFCs are subject to listing requirements unless they are government-owned.
