REC, PFC, HUDCO in spotlight as RBI proposes ₹1 lakh crore asset threshold for upper-layer NBFCs

Shares of non-banking financial companies (NBFCs) such as REC Ltd, PFC, HUDCO, and IRFC, among others, will be in focus after the RBI proposed a revised framework for identifying Upper-Layer NBFCs.

NBFCs with assets of ₹1 lakh crore and above will fall under the 'Upper Layer' category, replacing the current identification method with a simple absolute criterion.

NBFCs in 'Upper Layer' warrant enhanced regulatory requirement, the Reserve Bank of India (RBI) said.

What the RBI said

There is a need to amend the extant norms based on a review of instructions pertaining to methodology for the identification of NBFCs in the Upper Layer and placement of government-owned non-banking financial companies (NBFCs) in various layers.

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.

The Upper Layer would comprise those NBFCs which are specifically identified annually by the Reserve Bank as warranting enhanced regulatory requirements, said the RBI (Non Banking Financial Companies – Registration, Exemptions and Framework for Scale Based Regulation) Second Amendment Directions, 2026.

"The Upper Layer shall consist of NBFCs having asset size of ₹1,00,000 crore and above as per the latest audited balance sheet for the financial year," it said on the criteria for identification of NBFCs in the Upper Layer.

It further said the criteria for identification of NBFC-Upper Layer (UL) should be reviewed periodically. Further, the asset size threshold for the identification of NBFC-UL should be reviewed every three years.

The RBI said 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.

"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 said.

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

For example, the RBI said that 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.

Why the change?

The RBI has proposed the change to simplify the classification of systemically important NBFCs and ensure closer oversight of large lenders.

By automatically placing NBFCs with assets of ₹1 lakh crore or more in the Upper Layer, the central bank aims to strengthen financial stability, improve regulatory transparency, and ensure that the biggest non-bank lenders are subject to enhanced governance, capital, and risk-management standards.

While the move may marginally increase compliance costs for affected firms, it is largely seen as a step towards stronger sector-wide oversight.

Upper-Layer NBFCs

Upper-Layer NBFCs are large, systemically important lenders whose failure could pose risks to the broader financial system.

Under the proposed framework, NBFCs with assets of ₹1 lakh crore or more would automatically be classified as Upper Layer entities, replacing the earlier scoring-based methodology.

These firms are subject to stricter regulatory oversight, including enhanced capital, governance, risk-management, disclosure, and compliance requirements, aimed at strengthening financial stability and oversight of large non-bank lenders.

What you need to know about PFC, REC, HUDCO

According to reports, for PFC, REC, and HUDCO, the news is likely to be viewed as neutral to mildly negative in the short term because of the prospect of higher compliance and regulatory costs.

However, the long-term impact is likely limited, as these are already large, government-backed institutions with established risk-management frameworks. Investors will wait for the final RBI guidelines to assess the actual burden on these lenders.