Awaaz Explainer: RBI Released the List of NBFC Upper Layer, 15 Companies included, Know What it Means

The Reserve Bank has issued scale based regulations in October 2022. In which NBFCs were given base, middle, upper and top level. At present no company has been placed in the top level. A list of 15 companies has been released for the upper level.

RBI has released the list of upper layer NBFCs today. According to the Reserve Bank, 15 names have been included in this list under scale based regulation. Let us tell you that in view of the increasing size of the NBFC sector and the increasing impact of the risks associated with it on other sectors, the Reserve Bank had issued new rules for NBFCs from October 1, 2022.

In this, 4 categories of NBFC have been created according to size and business. The purpose of the category is to increase the rules required for the company as it expands. In simple language, the rules for NBFC-upper layer are almost the same as those given for banks. The list of 15 companies included in this category has been released today.

Who is included in NBFC upper layer?

15 names are included in the released list. According to the rules, the top 10 NBFCs of the country remain in this list and apart from these, the Reserve Bank can include any other company in it if it wants. The list includes LIC Housing Finance, Bajaj Finance, Shriram Finance, Tata Sons Private Limited (Core Investment Company), L&T Finance, Piramal Capital and Housing Finance, Cholamandalam Investment and Finance Company, India Bulls Housing Finance, Mahindra & Mahindra Financial Services. These include Tata Capital Financial Services, PNB Housing Finance, HDB Financial Services, Aditya Birla Finance, Muthoot Finance and Bajaj Housing Finance.

What is scale based regulation?

NBFCs are important because they fulfilled the financial needs of the people in places where banks could not reach. NBFCs were promoted because of their specialty of providing financial services to remote areas and the rules for this were not kept as strict as for banks.
However, with time, the size of many NBFCs increased and with it the size of the risks associated with them also increased and they reached a place where the impact of the risks associated with them could be seen on other sectors. Covid exposed this weakness. In view of this, in October 2021, the Reserve Bank made a proposal in which rules based on scale were talked about. That means, the bigger the size of the company, the regulation should be accordingly. After a year, the Reserve Bank issued rules related to 4 such categories.

how many categories are there

Reserve Bank has kept 4 categories in scale based regulation. Out of which companies have been kept in 3 categories.
At the bottom comes the Base Layer (NBFC –BL) in which companies with asset size of less than Rs 1000 crore are included. Broadly speaking, this includes those companies whose business is limited i.e. they are specific (P2P, account aggregator, non-operative holding company) or those which do not have customer interface.
Above this comes the middle layer (NBFC –ML). In this, all deposit accepting companies are included irrespective of the asset size, while non-deposit accepting companies whose asset size is more than Rs 1000 crore are included. Infra Debt Fund – NBFC, Housing Finance Companies, Infra Finance Company – NBFC are included. There are more regulations here than the base layer.
Above this come upper layer (NBFC-UL) companies. Whose size is quite large and the rules for them are almost the same as for banks. On the basis of asset size, the top 10 NBFCs remain in the upper layer, while there are many other parameters on the basis of which the Reserve Bank can include some other companies in it. Government-owned NBFCs will not be included in the upper level at present, they will either remain in the base level or in the middle level.
Top layer (NBFC-TL) companies come at the top. Theoretically this level has been kept empty. However, if the Reserve Bank feels that any NBFC included in the upper level has reached such a stage that the systematic risk has also increased with it, then such companies will be sent to the bank top layer.

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