The Reserve Bank of India (RBI) has announced the list of Non-Banking Financial Companies (NBFCs) in the Upper Layer (UL) under Scale Based Regulation (SBR) for the year 2024-25

Highlights of Recent RBI Release

• The NBFC Upper Layer (UL) list for 2024-25 includes Tata Sons Private Ltd, Bajaj Finance Ltd, LIC Housing Finance Ltd, and Aditya Birla Finance Ltd, among others.

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About NBFC Regulation

• Regulatory Powers: RBI regulates NBFCs under the RBI Act, 1934, with powers to register, inspect, and supervise NBFCs meeting the 50-50 principal business criteria.
• 50-50 Principal Business Criteria: Financial activity constitutes over 50% of total assets and gross income.
• Requirements for NBFC Registration
• • Must be a company registered under Section 3 of the Companies Act, 1956.
  • Minimum Net Owned Fund (NOF) of ₹200 lakh.

About Scale-Based Regulation (SBR) Framework

• The Scale-Based Regulation (SBR) framework, introduced by the Reserve Bank of India  in 2021, is a regulatory framework designed to classify Non-Banking Financial Companies (NBFCs) based on their asset size and scoring criteria.
• The aim is to strengthen risk management, apply proportional regulation, and address systemic risks in the NBFC sector.
• Objectives of the SBR Framework
  • Mitigation of Systemic Risks: To reduce the impact of financial contagion and safeguard the overall financial ecosystem.
  • Proportional Regulation: To ensure that regulatory intensity corresponds to the scale and complexity of NBFC operations.
  • Enhanced Risk Management: To improve the operational resilience and governance standards of NBFCs.
• Categorization of NBFCs
  • Base Layer (NBFC-BL): Includes smaller NBFCs with limited risk to the system.
  • Middle Layer (NBFC-ML): Comprises larger entities with moderate systemic importance.
  • Upper Layer (NBFC-UL): High-risk NBFCs based on scoring methodology and systemic importance.
  • Top Layer (NBFC-TL): Rarely occupied, for entities posing exceptional risks.
• Features of Enhanced Regulations
  • NBFC-ULs are subjected to stricter regulatory requirements for at least five years.
  • This includes increased compliance, monitoring, and governance norms

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Difference Between Banks and NBFCs

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