The Reserve Bank of India (RBI) on September 30 released a list of 16 upper layer non-banking finance companies (NBFC-ULs) that must adhere to enhanced regulation.
Key points
- These companies have been asked by the RBI to put in place a board-approved policy for adoption of the enhanced regulatory framework applicable to them.
- The NBFC-ULs includes; Bajaj Finance, LIC Housing Finance, Shriram Transport Finance, L&T Finance, Piramal Capital & Housing Finance, PNB Housing Finance, Tata Capital, Aditya Birla Finance, HDB Financial Services, and Mahindra and Mahindra Financial Services have been put in the upper layer. Further Indiabulls Housing Finance, Bajaj Housing Finance, Muthoot Finance, Sanghvi Finance, Cholam – andalam Investment & Finance have made it to the upper layer.
- Tata Sons has also been put in the upper layer as a core investment company.
About NBFC upper layer
- In October 2021, the RBI introduced a scale-based regulatory framework for NBFCs that will be effective October 1, 2022.
- Under RBI’s scale-based regulations for NBFCs, the finance companies have been categorised into four layers based on their size, activity, and perceived riskiness — base layer; middle layer; upper layer; and top layer.
- The upper layer comprises those NBFCs which are specifically identified by the RBI as warranting enhanced regulatory requirement based on a set of parameters and scoring methodology.
- And the top ten eligible NBFCs in terms of their asset size shall always reside in the upper layer, irrespective of any other factor.
- The NBFCs mentioned by the RBI have to put in place a board approved policy for adoption of the enhanced regulatory framework applicable to NBFC upper layer and chart out an implementation plan for adhering to the new set of regulations within three months.
- The board of these NBFCs will have to ensure that the stipulations prescribed for the NBFC upper layer are adhered to within a maximum time-period of 24 months.
- The aggregate exposure of an upper layer NBFC, which is in the top category, to any entity must not exceed 20 percent of its capital base, although this limit can be enhanced to 25 percent with board approval.
- The aggregate exposure to a group of connected entities will be limited to 25 percent of the capital base for all upper-layer NBFCs.
