RBI Proposes Sweeping Changes to NBFC Upper-Layer Identification Framework
The Reserve Bank of India (RBI) on Friday unveiled a draft proposal aimed at significantly overhauling the framework for identifying upper-layer non-banking finance companies (NBFCs). This move suggests a fundamental shift towards an asset-size-based criterion and includes the inclusion of government-owned entities, as reported by PTI.
New Asset-Size Threshold for Upper-Layer NBFCs
Under the draft 'Reserve Bank of India (Non-Banking Financial Companies' Registration, Exemptions and Framework for Scale Based Regulation) Second Amendment Directions, 2026', NBFCs with assets exceeding Rs 1 lakh crore will qualify for the upper layer, designated as NBFC-UL. The central bank stated, "With a view to adopt a transparent, simple and absolute criteria for identification of NBFC-UL, it is proposed to replace the existing methodology with asset size criteria, which is currently proposed as Rs 1,00,000 crore and above." This proposal is detailed on the RBI's official website, marking a departure from the current system that identifies the top-15 NBFCs for the upper layer.
Context and Implications for Tata Sons
The proposal emerges amidst ongoing discussions concerning the listing of Tata Sons, which is currently part of the upper-layer NBFCs but has not complied with the October 2025 deadline for listing. Tata Sons reported an asset base of Rs 1.75 lakh crore as of March 2025, positioning it well above the proposed threshold. This revision could impact compliance requirements for such entities, as Governor Sanjay Malhotra had previously indicated the RBI's intent to introduce a revised framework while addressing queries related to Tata Sons' adherence to existing norms.
Inclusion of Government-Owned NBFCs
In a significant development, the draft also proposes incorporating government-owned NBFCs into the upper layer. Currently, these entities are placed in the base or middle layers of the scale-based regulation framework. The RBI explained, "The scale-based regulation framework currently places government-owned NBFCs in the base layer or middle layer and not in the UL. In pursuance of the principle of ownership neutral regulatory regime for NBFCs, it is now proposed to consider eligible government-owned NBFCs also for inclusion in the list of NBFC-UL based on the revised criteria." This change aims to ensure a level playing field and regulatory consistency across all NBFCs, regardless of ownership.
Enhanced Credit Risk Transfer Instruments
Additionally, the central bank has proposed allowing all NBFC-UL entities to utilize state government guarantees as a credit risk transfer instrument without any limit, subject to specified conditions. This measure is designed to enhance financial stability and provide greater flexibility in risk management for upper-layer NBFCs, potentially fostering more robust lending practices and economic growth.
The draft proposal is open for public feedback, and its implementation could reshape the regulatory landscape for NBFCs in India, promoting transparency and simplicity in identification processes while addressing contemporary challenges in the financial sector.
