In the year 2023-24, RBI released the names of 15 NBFCs that fall under the Upper Layer (UL)/NBFC-UL of the SBR. This article provides an in-depth exploration of the SBR framework, its layers, and its implications for the NBFC sector in India. In October 2021, the Reserve Bank of India (RBI) introduced a groundbreaking regulatory framework known as Scale Based Regulation (SBR) for Non-Banking Financial Companies (NBFCs). This framework aims to categorize NBFCs based on their asset size and other critical factors, providing a clear roadmap for regulation.
Scale Based Regulation (SBR) is a revised regulatory framework introduced by RBI for NBFCs in India. This framework is designed to categorize NBFCs based on their asset size and activities, allowing for more tailored regulatory oversight. Here’s a breakdown of the key aspects of the SBR:
The Base Layer primarily consists of non-deposit-taking NBFCs with assets below Rs 1,000 crore. It includes NBFC Peer to Peer (P2P), NBFC-Account Aggregator (AA), Non-Operative Financial Holding Company (NOFHC), and NBFCs without public funds and customer interface.
The Middle Layer encompasses deposit-taking NBFCs and non-deposit-taking NBFCs with assets exceeding Rs 1,000 crore. It also includes NBFCs engaged in specific activities such as Standalone Primary Dealers (SPDs), Infrastructure Debt Fund – NBFCs (IDF-NBFCs), Core Investment Companies (CICs), Housing Finance Companies (HFCs), and Infrastructure Finance Companies (NBFC-IFCs).
The Upper Layer includes NBFCs identified by RBI as warranting enhanced regulatory requirements based on specific parameters and scoring methodology. The top 10 eligible NBFCs in terms of asset size will always reside in the Upper Layer, regardless of other factors.
NBFCs in the Upper Layer can be moved to the Top Layer if RBI recognizes a substantial increase in potential systemic risk. As of now, the Top Layer remains ideally empty, but it serves as a contingency for increased risk.
NBFCs falling outside the predefined layers, such as Investment and Credit Companies (NBFC-ICC), Micro Finance Institutions (NBFC-MFI), NBFC-Factors, and Mortgage Guarantee Companies (NBFC-MGC), may be placed in any of the layers of the regulatory structure depending on various parameters determined by RBI.
The introduction of the SBR framework by RBI carries significant implications for the NBFC sector in India. It allows for a more nuanced and risk-based approach to regulation, ensuring that NBFCs are subject to appropriate levels of oversight based on their size and activities. Here are some key implications:
1. Tailored Regulatory Oversight
NBFCs will receive regulatory oversight tailored to their specific risk profiles and activities, reducing the burden of excessive regulation on smaller entities while ensuring robust oversight for larger and potentially systemic NBFCs.
2. Systemic Risk Mitigation
The ability to move NBFCs to the Top Layer in the event of increased systemic risk ensures that the RBI can respond swiftly to emerging threats to financial stability.
3. Clarity and Transparency
The SBR framework brings clarity and transparency to the regulatory landscape for NBFCs, allowing market participants to better understand their obligations and requirements.
| S. No. | Company Name | Type | Category |
|---|---|---|---|
| 1 | LIC Housing Finance Limited | Deposit taking | Housing Finance Company |
| 2 | Bajaj Finance Limited | Deposit taking | Non-Banking Financial Company – Investment and Credit Company (NBFC-ICC) |
| 3 | Shriram Finance Limited (formerly Shriram Transport Finance Company Limited) | Deposit taking | Non-Banking Financial Company – Investment and Credit Company (NBFC-ICC) |
| 4 | Tata Sons Private Limited | Core Investment Company (CIC) | – |
| 5 | L & T Finance Limited | Non-deposit taking | Non-Banking Financial Company – Investment and Credit Company (NBFC-ICC) |
| 6 | Piramal Capital & Housing Finance Limited | Non-deposit taking | Housing Finance Company |
| 7 | Cholamandalam Investment and Finance Company Limited | Non-deposit taking | Non-Banking Financial Company – Investment and Credit Company (NBFC-ICC) |
| 8 | Indiabulls Housing Finance Limited | Non-deposit taking | Housing Finance Company |
| 9 | Mahindra & Mahindra Financial Services Limited | Deposit taking | Non-Banking Financial Company – Investment and Credit Company (NBFC-ICC) |
| 10 | Tata Capital Financial Services Limited | Non-deposit taking | Non-Banking Financial Company – Investment and Credit Company (NBFC-ICC) |
| 11 | PNB Housing Finance Limited | Deposit taking | Housing Finance Company |
| 12 | HDB Financial Services Limited | Non-deposit taking | Non-Banking Financial Company – Investment and Credit Company (NBFC-ICC) |
| 13 | Aditya Birla Finance Limited | Non-deposit taking | Non-Banking Financial Company – Investment and Credit Company (NBFC-ICC) |
| 14 | Muthoot Finance Limited | Non-deposit taking | Non-Banking Financial Company – Investment and Credit Company (NBFC-ICC) |
| 15 | Bajaj Housing Finance Ltd. | Non-deposit taking | Housing Finance Company |
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