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What is the story about?
The Reserve Bank of India (RBI) on Wednesday simplified the methodology for identifying Upper Layer non-banking financial companies (NBFCs), announcing that entities with an asset size of ₹1 lakh crore and above will now be considered for inclusion in the category.
The move replaces the existing multi-parameter methodology used to identify NBFCs that warrant enhanced regulatory oversight. The Upper Layer comprises large and systemically important NBFCs that are subject to stricter regulatory requirements than their peers.
The change was announced as part of a set of amendments issued by the central bank following a review of feedback received on draft proposals released in April.
Alongside the classification overhaul, the RBI also eased lending norms for Upper Layer Non-Banking Financial Company-Infrastructure Finance Companies (NBFC-IFCs). The central bank increased the large exposure limit for such entities to 45% of their eligible capital base from the earlier ceiling of 35%.
According to the RBI, the relaxation reflects the specialised nature of infrastructure finance companies, the financing requirements of the infrastructure sector and the need to avoid any adverse impact on ongoing projects.
In another significant decision, the central bank said eligible government-owned NBFCs would also be considered for inclusion in the Upper Layer framework, in line with its ownership-neutral approach to regulation. However, fully government-owned and government-controlled NBFCs in the category will not be required to list their shares on stock exchanges.
The RBI identifies Upper Layer NBFCs annually and subjects them to enhanced supervision and governance requirements owing to their size, interconnectedness and potential impact on the broader financial system.
The latest changes are aimed at streamlining the regulatory framework while ensuring that large NBFCs and infrastructure financiers remain adequately equipped to support the economy's growing financing needs.
The move replaces the existing multi-parameter methodology used to identify NBFCs that warrant enhanced regulatory oversight. The Upper Layer comprises large and systemically important NBFCs that are subject to stricter regulatory requirements than their peers.
The change was announced as part of a set of amendments issued by the central bank following a review of feedback received on draft proposals released in April.
Alongside the classification overhaul, the RBI also eased lending norms for Upper Layer Non-Banking Financial Company-Infrastructure Finance Companies (NBFC-IFCs). The central bank increased the large exposure limit for such entities to 45% of their eligible capital base from the earlier ceiling of 35%.
According to the RBI, the relaxation reflects the specialised nature of infrastructure finance companies, the financing requirements of the infrastructure sector and the need to avoid any adverse impact on ongoing projects.
In another significant decision, the central bank said eligible government-owned NBFCs would also be considered for inclusion in the Upper Layer framework, in line with its ownership-neutral approach to regulation. However, fully government-owned and government-controlled NBFCs in the category will not be required to list their shares on stock exchanges.
The RBI identifies Upper Layer NBFCs annually and subjects them to enhanced supervision and governance requirements owing to their size, interconnectedness and potential impact on the broader financial system.
The latest changes are aimed at streamlining the regulatory framework while ensuring that large NBFCs and infrastructure financiers remain adequately equipped to support the economy's growing financing needs.
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