RBI vide circular dated October 19, 2023 has issued Master Direction – Reserve Bank of India (Non-Banking Financial Company– Scale Based Regulation) Directions, 2023. Under these new regulations, the regulatory structure for NBFCs will be organized into four layers, based on their size and activities. These layers are as follows:
Base Layer (NBFCs-BL):
Comprises non-deposit taking NBFCs with assets below ₹1,000 crore. Also includes NBFCs involved in activities like Peer-to-Peer Lending Platforms (NBFC-P2P), Account Aggregators (NBFC-AA), Non Operative Financial Holding Companies (NOFHC), and NBFCs without public funds and customer interface.
Middle Layer (NBFCs-ML):
Consists of all deposit-taking NBFCs, regardless of their asset size. Also includes non-deposit taking NBFCs with assets of ₹1,000 crore and above. Covers various activities, such as Standalone Primary Dealers (SPD), Infrastructure Debt Fund-NBFC (IDF-NBFC), Core Investment Companies (CIC), Housing Finance Companies (HFC), and Infrastructure Finance Companies (NBFC-IFC).
Upper Layer (NBFCs-UL):
Comprises NBFCs specifically identified by the RBI for enhanced regulatory requirements based on predefined parameters and scoring methodology. The top ten NBFCs by asset size will always be in the Upper Layer.
Top Layer (NBFCs-TL):
Ideally remains empty and serves as a buffer. Can be populated if the RBI deems certain NBFCs in the Upper Layer to pose a substantial systemic risk.
Categorization of NBFCs by Activity
The regulatory structure also categorizes NBFCs based on their activities:
NBFCs like P2P Lending Platforms, Account Aggregators, NOFHC, and those without public funds or customer interface will always remain in the Base Layer. Deposit-taking NBFCs, CICs, NBFC-IFCs, HFCs, SPDs, and IDF-NBFCs will be part of the Middle Layer or Upper Layer. NBFCs such as Investment and Credit Companies, Micro Finance Institutions, Factors, and Mortgage Guarantee Companies may fall into any layer based on scale-based parameters. Government-owned NBFCs will be placed in the Base or Middle Layer, depending on their specific circumstances.
Transition and Asset Size
Once an NBFC’s asset size reaches ₹1,000 crore or more, it will be subject to the regulatory requirements applicable to the Middle Layer, irrespective of its size on the last balance sheet date. This ensures that regulatory oversight adapts dynamically to an NBFC’s growth.
Consolidation for Group-Owned NBFCs
If multiple NBFCs are part of a common group or share promoters, their total assets will be consolidated to determine their Middle Layer classification. If the consolidated assets are ₹1,000 crore or more, each NBFC in the group will be classified as Middle Layer NBFCs.
