The Reserve Bank of India (RBI) has revised the framework for classifying Non-Banking Financial Companies (NBFCs) under the Upper Layer category, raising the asset-size threshold and introducing changes that include government-owned NBFCs within the regulatory framework.
Under the revised norms, NBFCs with an asset size of Rs 1,00,000 crore or more, based on their latest audited financial statements, will be considered for inclusion in the Upper Layer category.
The RBI said that Upper Layer NBFCs will comprise entities identified by the central bank as requiring enhanced regulatory oversight due to their size and potential impact on financial system stability.
The regulator also clarified that the asset threshold will not remain static.
According to the revised framework, the asset-size criterion used for classification will be reviewed every three years.
Government-Owned NBFCs Included
In a significant policy shift, the RBI has extended the Upper Layer framework to eligible government-owned NBFCs, aligning the classification process with its ownership-neutral regulatory approach.
However, the central bank has provided a key exemption for such entities.
While privately owned NBFCs classified as Upper Layer entities are required to list on stock exchanges within three years of being designated as NBFC-UL, government-owned NBFCs placed in the same category will not be subject to this mandatory listing requirement.
Higher Lending Limits for Infrastructure Finance Companies
The RBI has also relaxed lending norms for Infrastructure Finance Companies (IFCs) classified under the Upper Layer category.
Under the revised rules, the large exposure limit for Upper Layer IFCs has been increased to 45 percent of their eligible capital base, up from the earlier limit of 35 percent.
The move is intended to address the financing needs of large infrastructure projects and improve credit availability for the sector.
By allowing higher exposure to connected groups of borrowers, the revised framework is expected to support funding requirements for major infrastructure projects and reduce the risk of project delays caused by financing constraints.
The RBI said the relaxation was introduced after considering the capital-intensive nature of infrastructure development and the need to ensure uninterrupted project execution.
Focus on Financial Stability
The Upper Layer category forms part of the RBI’s scale-based regulatory framework for NBFCs and includes systemically important institutions whose size and interconnectedness warrant closer supervision.
These entities are subject to stricter regulatory requirements than lower-tier NBFCs because any financial stress within such institutions could have broader implications for the financial system.
With the revised asset threshold, inclusion of government-owned entities, and higher lending limits for infrastructure financiers, the RBI’s latest changes seek to balance stronger regulatory oversight with the funding needs of critical sectors of the economy.
