NBFCs with asset size of Rs 1 lakh crore and above to be classified as Upper Layer, says RBI
New Delhi, June 24
The Reserve Bank of India has issued revised norms for classifying NBFCs in the Upper Layer category and for the inclusion of government-owned NBFCs in the category.
According to the revised criteria, the Upper Layer NBFCs will be categorised on the basis of an asset size of Rs 1,00,000 crore and above as per the latest audited balance sheet for the financial year.
The Upper Layer will have those NBFCs that are specifically identified by the central bank as warranting enhanced regulatory requirements based on the revised criteria of Rs 1,00,000 crore asset threshold. The asset criteria for categorising NBFCs will be reviewed every three years, the RBI said.
The RBI, in its amendments to the earlier norms, also allowed eligible government-owned NBFCs to be a part of the Upper Layer in accordance with the regulator's ownership-neutral approach.
However, these government-owned NBFCs that are categorised as Upper Layer will not have to list on the stock exchanges. NBFCs that are categorised in the Upper Category have to list on the exchanges within three years of them being recognised as NBFC-UL.
In another major move, the RBI eased the norms for lending by the NBFC-IFCs placed in the Upper Layer category. The RBI has increased the large exposure limit for IFCs in Upper Layer to 45 per cent of their eligible capital base from the earlier limit of 35 per cent.
The easing of norms for Infrastructure Finance Companies in the Upper Category will allow a group of connected borrowers to avail larger funding and will ensure that infrastructure projects don't remain stuck. The RBI said that the relaxation in norms has been done considering the financing needs of the infrastructure sector and to avoid any adverse impact on infrastructure projects.
NBFCs placed in the Upper Layer category are systemically important entities due to their size and need more regulatory oversight to avoid any shock to the financial system.
— ANI
Reader Comments
Finally some clarity on government-owned NBFCs! The ownership-neutral approach is fair - but why exempt them from listing on stock exchanges? If they're in the upper layer, they should follow same rules as private ones. Transparency is key for financial stability na?
The relaxation for IFCs in Upper Layer from 35% to 45% large exposure limit is much needed. Infrastructure projects are already struggling with delays and cost overruns. This will help NBFC-IFCs provide more funding to connected borrowers without breaking regulations. Smart step.
Appreciate the review every three years for the asset threshold - keeps it dynamic with economic growth. But hope RBI doesn't create too much compliance burden for NBFCs. They are crucial for last-mile credit delivery, especially in semi-urban and rural areas. Balance is important.
From a global perspective, this aligns with Basel III norms for shadow banking regulation. India's NBFC sector is too important to be left loosely regulated. The upper layer classification and mandatory listing will bring more discipline. Let's see how the market reacts.
The devil is in the details - will this lead to consolidation in the NBFC sector? Many mid-sized players might now try to stay below 1 lakh crore to avoid enhanced regulations. Could be good for systemic stability but might reduce competition. Hope RBI monitors this unintended consequence.
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