LIC Housing Finance, Bajaj Finance, Shriram Finance top RBI’s list of upper-layer NBFCs

The Reserve Bank of India (RBI) has released a list of NBFCs (non-banking finance companies) in the upper layer (UL) under its scale-based regulations for the year 2023-24.

The list of NBFCs in the upper layer is topped by LIC Housing Finance Limited, a deposit-taking housing finance company, followed by Bajaj Finance Ltd, a deposit-taking investment and credit company, and Shriram Finance Limited, earlier known as Shriram Transport Finance Company Ltd, a deposit-taking investment and credit company.

Tata Sons Private Ltd, a non-deposit-taking investment and credit company, finds 4th place in the RBI's latest list, while Piramal Capital & Housing Finance Ltd, a non-deposit-taking housing finance company, has been placed in 5th place.

The other companies in the 15-company list are Cholamandalam Investment and Finance Company Ltd, Indiabulls Housing Finance Ltd, Mahindra & Mahindra Financial Services Ltd, Tata Capital Financial Services Ltd, PNB Housing Finance Ltd, HDB Financial Services Ltd, Aditya Birla Finance Ltd, Muthoot Finance Ltd, and Bajaj Housing Finance Ltd.

Despite qualifying under the NBFC-UL methodology, TMF Business Services Ltd (formerly Tata Motors Finance) has been excluded from the list due to its "ongoing business reorganisation", the RBI says.

Notably, once an NBFC is put under the NBFC-UL, it is subjected to enhanced regulatory requirements, at least for five years from its classification in the layer, "even in case it does not meet the parametric criteria in the subsequent years".

The Reserve Bank issued the scale-based regulation (SBR), a revised regulatory framework for NBFCs, on October 22, 2021.

The SBR framework categorises these shadow banks in the base layer (NBFC-BL), middle layer (NBFC-ML), upper layer (NBFC-UL), and top layer (NBFC-TL) and also gives the methodology to identify them in the upper layer as per their asset size and scoring methodology.

The base layer comprises non-deposit-taking NBFCs below the asset size of ₹1,000 crore, while those in the middle layer comprise all deposit-taking NBFCs with asset size of ₹1,000 crore and above and those who work as standalone primary dealers, infrastructure debt fund, core investment companies, housing finance companies, and infrastructure finance firms.

In the upper layer, NBFCs are specifically identified by the Reserve Bank as warranting enhanced regulatory requirements. The top 10 eligible NBFCs in terms of their asset size will always reside in the upper layer.

The 'top layer' will ideally remain empty, says the RBI, adding that it can get populated if the central bank thinks there is a substantial increase in the potential systemic risk from specific NBFCs in the upper layer. In that case, such NBFCs will be moved to the top layer from the upper layer.

The need for the categorisation of NBFCs arose, says the RBI, as over the years the non-banking finance sector has undergone considerable evolution and many entities have grown and become systemically "significant".