India Ratings and Research (Ind-Ra) has said the revised draft framework for classifying non-banking financial companies (NBFCs) into the Upper Layer is unlikely to create material risks for most large incumbent NBFCs, though core investment companies (CICs) may face greater regulatory and structural challenges. 

The proposed framework shifts to a single threshold criterion, assets under management (AUM) exceeding ₹1 lakh crore, for categorisation into the upper layer. According to Ind-Ra, established large NBFCs already operate with the scale, governance standards, and capital strength required under the tighter regulatory regime. 

Large NBFCs seen well prepared 

“The revised draft framework for categorising NBFCs into NBFC-UL is unlikely to have any significant impact on existing NBFCs. However, CICs could face challenges with the AUM-based approach, especially in terms of listing equity and enhancing compliance and governance requirements,” said Karan Gupta, Director, Financial Institutions, Ind-Ra. 

The rating agency noted that since the revised classification will be conducted annually and based solely on a quantified AUM threshold, NBFCs nearing the ₹1 lakh crore mark are likely to proactively recalibrate business plans and operating models to avoid sudden regulatory escalation. 

Capital adequacy not a major concern 

Under the revised framework, NBFC-UL entities will be required to maintain a minimum Common Equity Tier 1 (CET1) ratio of 9% of risk-weighted assets. Ind-Ra said this is unlikely to be a hurdle for existing Upper Layer NBFCs, given their already strong capitalisation levels. 

However, the agency cautioned that aggressive balance-sheet growth could make capital a limiting factor, prompting NBFCs to align expansion plans with their ability to raise fresh capital. 

Large exposure rules manageable 

NBFC-UL entities will also need to comply with the Large Exposures Framework (LEF), including board-approved internal exposure limits to sectors such as NBFCs. 

Ind-Ra believes this requirement is unlikely to significantly disrupt the industry, as wholesale lending exposure is concentrated among a limited set of players while most large NBFCs maintain diversified portfolios with a sizeable retail lending component. 

Even wholesale-focused NBFCs generally spread exposures across sectors and counterparties, reducing the need for major portfolio restructuring. 

CICs may bear the brunt 

While the broader framework appears manageable for the sector, CICs are expected to be disproportionately affected. 

According to Ind-Ra, CICs with consolidated assets approaching or exceeding ₹1 trillion may face higher compliance costs under the new regime. Mandatory listing requirements could prove especially burdensome for CICs structured primarily for promoter-level capital allocation rather than public market access.