RBI Proposes Absolute Asset Size Threshold for Upper Layer NBFC Classification
The Reserve Bank of India released draft directions proposing to replace the existing complex methodology for identifying Upper Layer NBFCs with a simple absolute asset-size criterion of ₹1 lakh crore and above.
Under the proposal, any NBFC with total assets of ₹1 lakh crore or more as per its latest audited balance sheet would automatically be classified as an Upper Layer NBFC (NBFC-UL), regardless of scoring parameters.
The draft also proposes including eligible government-owned NBFCs in the Upper Layer list, a departure from the current practice that largely exempted them, in pursuit of an ownership-neutral regulatory regime.
The change has significant implications for Tata Sons — currently classified as a Core Investment Company (CIC) and in the Upper Layer — which had been considering restructuring to avoid mandatory listing requirements that apply to NBFC-ULs.
Scale-Based Regulation (SBR) Framework for NBFCs
The Reserve Bank introduced the Scale-Based Regulatory (SBR) framework for NBFCs in October 2021, moving away from activity-based to size-and-risk-based regulation. The framework divides NBFCs into four layers: Base Layer (NBFC-BL), Middle Layer (NBFC-ML), Upper Layer (NBFC-UL), and Top Layer (NBFC-TL).
The RBI is simplifying the UL identification to a single absolute threshold (₹1 lakh crore assets), replacing the existing scoring-based method that critics called opaque and inconsistent.
Core Investment Companies (CICs) and NBFC Listing Requirements
A Core Investment Company is a non-banking financial company that holds at least 90% of its net assets in equity shares, preference shares, bonds, debentures, or loans in group companies, and does not carry on any other financial activity. Tata Sons is registered as a CIC.
Key Details
- CICs with assets ≥ ₹100 crore are systemically important and require RBI registration.
- NBFC-UL entities are required to list on a recognised stock exchange within three years of being classified as Upper Layer.
- Tata Sons has resisted listing, as listing would make group ownership structure public and subject it to market disclosure norms.
- The proposed absolute asset-size criterion does not grant exemptions to CICs, meaning Tata Sons would remain in the Upper Layer.
The ownership-neutral language in the draft closes the potential route for government NBFCs to stay outside the UL perimeter, while the absolute threshold removes scoring-based flexibility that entities might have used to exit the UL classification.
Ownership-Neutral Regulation Principle
Ownership-neutral regulation means the RBI applies identical prudential norms to similarly sized entities regardless of whether they are privately owned, government-owned, or foreign-owned. This principle was articulated in the Kamath Committee and various RBI discussion papers on NBFC regulation.
Key Details
- Government-owned NBFCs like REC, PFC, and NHB have historically operated under lighter oversight due to sovereign backing.
- Inclusion in NBFC-UL subjects them to enhanced disclosure, governance, and capital adequacy requirements comparable to large private NBFCs.
- The draft proposes bringing eligible PSU NBFCs above ₹1 lakh crore under the same Upper Layer framework.
By proposing to extend Upper Layer norms to government NBFCs, the RBI is asserting that systemic importance — not ownership — should drive regulatory intensity.
- Current NBFC-UL list (as of March 2025): 15 NBFCs, including Bajaj Finance, LIC Housing Finance, Tata Sons, Shriram Finance, and others.
- Proposed threshold: Total assets ≥ ₹1,00,000 crore (₹1 lakh crore) as per latest audited balance sheet.
- Current identification method: Top 10 eligible NBFCs by asset size + parametric scoring methodology.
- NBFC-UL entities must list within 3 years of classification; face bank-like prudential norms including LCR requirements.
- SBR framework was introduced via RBI circular of October 22, 2021.
- Top Layer remains empty — intended for entities posing extreme systemic risk.