NBFCs with ₹1 lakh crore asset size to be classified under Upper Layer: RBI

Non-banking financial companies (NBFCs) with an asset size of ₹1 lakh crore and above will be classified under the ‘Upper Layer’ category, the Reserve Bank said on Wednesday as it simplified the methodology for identifying such entities under its scale-based regulatory framework.

The central bank also said eligible government-owned NBFCs will be considered for inclusion in the NBFC-Upper Layer (NBFC-UL) under the revised criteria, while separate exemptions granted to such entities from credit and investment concentration norms will be withdrawn.

The central bank issued amendment directions after reviewing feedback on draft proposals released in April on the methodology for identification of NBFCs in the Upper Layer and inclusion of government-owned NBFCs in the category.

The RBI regulates NBFCs based on their size, risk profile, and systemic importance.

NBFCs are classified as -- NBFC-Base Layer, NBFC-Middle Layer, NBFC-Upper Layer, and NBFC-Top Layer -- under scale-based regulation.

Under the revised framework, the Upper Layer will consist of NBFCs having asset size of ₹1,00,000 crore and above as per the latest audited balance sheet for the financial year.

The move replaces the earlier methodology used for identifying NBFCs in the Upper Layer with a simpler asset-size based criterion.

The Reserve Bank said the criteria for identification of NBFC-UL will be reviewed periodically, while the asset-size threshold for classification will be reviewed every three years.

NBFCs, which are group entities of a commercial bank, should adhere to the applicable provisions in case a particular business/activity is being undertaken by both the NBFC and its parent bank, the central bank said.

"These provisions are applicable to the NBFCs which are group entities of scheduled commercial banks, irrespective of their layer-wise classification as per the provisions of these Directions," it added.

However, such NBFCs would continue to be classified in the layer as per the regulatory structure under scale-based regulation, it added.

For example, if an Infrastructure Debt Fund (IDF-NBFC), which is a group entity of a scheduled commercial bank, the regulations as applicable to NBFC – Upper Layer, other than the requirement of listing, should be applicable to the IDF -NBFC.

However, the IDF-NBFC will continue to be in the middle layer as per the regulatory structure under Scale-Based Regulation.