The Reserve Bank of India (RBI) has released the list of 15 entities that will comprise the ‘NBFCs in the upper layer for 2023-24’ under the scale-based regulations for non-banking financial companies.
This list of NBFCs includes deposit-taking, non-deposit taking NBFCs, and core investment company (CIC).
The list of 15 companies includes LIC Housing Finance, Bajaj Finance, Shriram Finance, Tata Sons Pvt Ltd, L&T finance, Piramal Capital & Housing Finance, Cholamandalam Investment & Finance Company, Indiabulls Housing Finance, Mahindra & Mahindra Financial Services, Tata Capital Financial Services, PNB Housing Finance, HDB Financial Services, Aditya Birla Finance, Muthoot Finance and Bajaj Housing Finance.
Now these financial institutions will be subject to enhanced regulatory requirements, at least for the next five years even if it ceases to remain in this list in the subsequent year, RBI declared.
The banking regulator has defined four layers based on their size, activity and risk. The financial institutions in the lowest layer are referred to as the base layer, those in the middle layer and upper layer will be called NBFCs — middle layer and NBFCs — upper layer, respectively.
The top layer is likely to remain empty and will be known as NBFC - top layer. Segregating NBFCs on the basis of size is a part of the regulatory framework for NBFCs.
A short background on the regulations
The banking regulator set the ball rolling for NBFCs by releasing a discussion paper titled Revised Regulatory Framework for NBFCs - A scale based approach that was issued for public comments on Jan 22, 2021. Based on the inputs received, it was decided to put in place a revised regulatory framework for NBFCs.
Two years ago, the banking regulator had announced via a notification on Oct 22, 2021 that there will be scale-based regulation (SBR) before finally releasing a list of financial institutions in the upper layer on Thursday.
The regulatory framework released on Oct 22, 2021 states that the top ten eligible NBFCs in terms of their asset size will always remain in the upper layer regardless of any other factor.