RBI Proposes Transparent Asset-Based Framework for Upper Layer NBFCs

The Reserve Bank of India (RBI) has proposed changes in the identification criteria for upper layer non-banking financial companies (NBFCs), suggesting an asset-size-based approach. The proposal includes government-owned entities in the upper layer and aims for simplicity and transparency in categorizing NBFC-ULs with assets over Rs 1 lakh crore.

The Reserve Bank of India (RBI) on Friday unveiled a draft proposal aimed at revising the criteria for identifying upper layer non-banking financial companies (NBFCs). The new approach advocates for an asset-size-based system, marked by a minimum threshold of Rs 1 lakh crore, diverging from the previously employed parametric system.

This shift comes as part of RBI's endeavor to implement a more transparent and straightforward methodology for the classification of NBFC-ULs. The draft further proposes a significant change by including eligible government-owned NBFCs in the upper layer, aligning with a principle of ownership-neutral regulation.

The proposal surfaces amidst ongoing discussions about the possible listing of Tata Sons, a key player in India's financial landscape that remains unlisted despite regulatory expectations. The draft also allows upper layer NBFCs to leverage state government guarantees for credit risk transfers, underscoring efforts to refine regulatory frameworks for financial entities.

(With inputs from agencies.)