Currently, the Upper Layer is populated with NBFCs, identified by way of a parametric scoring methodology
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EMMANUAL YOGINI
In a major overhaul of the methodology for identification of non-banking finance companies (NBFCs) in the Upper Layer (UL), the RBI plans to move away from the current parametric scoring methodology to one based on asset size.
Under the proposed overhaul, NBFCs in the upper layer, which are tightly regulated and supervised by RBI, will comprise those with assets of ₹1 lakh crore and above as per the latest audited balance sheet for the financial year.
Further, government-owned NBFCs will be brought under the Framework for scale-based Regulation of NBFCs, removing the arbitrage they enjoyed vis-à-vis private sector NBFCs, per the draft RBI guidelines.
So, State-owned NBFCs such as PFC, REC, and IRFC could be classified as NBFC-UL.
Currently, the Upper Layer is populated with NBFCs, identified by way of a parametric scoring methodology, comprising quantitative and qualitative parameters as well as supervisory judgment. This includes those with an asset size of less than ₹1 lakh crore.
There were 15 NBFCs in the Upper Layer under RBI’s scale-based regulation for the year 2024-25. It included LIC Housing Finance, Bajaj Finance, Shriram Finance, Tata Sons, Cholamandalam Investment and Finance, Tata Capital, Mahindra & Mahindra Financial Services, Aditya Birla Finance and Muthoot Finance, among others.
So far as Tata Sons is concerned, nothing much changes as its balance sheet size is well above the threshold, and it is up to the RBI to take a call on its classification as a UL-NBFC.
Sanjay Agarwal, Senior Director, CareEdge Ratings, said: “The RBI wants to give guidance to the market that identification of NBFCs in the Upper Layer will not be discretionary. It will be in black and white, based on asset size.
“So, the ₹1 lakh crore asset size criteria for placing an NBFC in the UL is a clear signal to those reaching this threshold to start preparing for an enhanced regulatory framework.”
He assessed that two to three private sector NBFCs could be out of the RBI’s UL list. However, the list will include large government-owned NBFCs.
Agarwal observed that for NBFCs in the UL, the level of regulatory compliance goes up, and their organisational structure has to be moulded according to the requirements of this layer.
He pointed out that it is not clear from the draft directions if consolidated assets of an NBFC, which has subsidiaries, will be taken into account under the proposed asset size criteria for classifying it as an Upper Layer NBFC.
Govt-owned NBFCs
A M Karthik, Senior Vice President and Co-Group Head Financial Sector Ratings, ICRA, opined that the draft directions on identification of Upper Layer NBFCs (NBFC-UL), which are based on the asset size criteria, provide clarity to all stakeholders.
Further, the inclusion of government-owned entities, too, based on their size, indicates a more harmonised way of identifying NBFC-UL. Based on the existing position, the number of NBFC-UL would go up vis-à-vis the 15 entities identified previously.
As per the Draft Directions, the criteria for identification of NBFC-UL shall be reviewed periodically. Further, the asset size threshold for identification of NBFC-UL shall be reviewed every five years.
Published on April 10, 2026
