Source: ET
Context:
The Reserve Bank of India (RBI) has directed 15 Upper Layer Non-Banking Financial Companies (NBFCs), including Tata Sons (a Core Investment Company – CIC), to list on stock exchanges by 30 September 2025.
This mandate stems from the Scale-Based Regulation (SBR) Framework, which classifies NBFCs based on their size, activity, and systemic importance to ensure proportionate regulation and stronger governance in the shadow banking sector.
About the Scale-Based Regulation (SBR) Framework
Introduced by the RBI in October 2021, the Scale-Based Regulation (SBR) framework is a risk-based regulatory structure for NBFCs.
It aims to align regulatory intensity with the size, complexity, and risk profile of NBFCs—similar to the tiered approach used for banks.
Objective
- To strengthen financial stability and regulatory oversight in the NBFC sector.
- To prevent systemic risks from large, interconnected NBFCs.
- To improve transparency, governance, and accountability through stricter compliance norms.
Four-Layer Structure Under the SBR Framework
| Layer | Category Name | Description / Entities Covered | Regulatory Intensity |
|---|---|---|---|
| 1. Base Layer (NBFC-BL) | Smaller NBFCs | Non-systemically important NBFCs (e.g., small loan companies, investment firms) | Light |
| 2. Middle Layer (NBFC-ML) | Larger systemically important NBFCs | Includes deposit-taking NBFCs, large housing finance companies, infrastructure debt funds, etc. | Moderate |
| 3. Upper Layer (NBFC-UL) | Top 10–15 large and systemically critical NBFCs | Identified by RBI based on size, leverage, interconnectedness, complexity, and risk profile | High |
| 4. Top Layer (NBFC-TL) | Possible future category | To be used if RBI observes extreme risk concentration in certain NBFCs | Very High |
Key Features of the SBR Framework
- Proportionate Regulation
- Regulatory requirements increase with the size and risk of the NBFC.
- Governance and Board Oversight
- Upper Layer NBFCs must adopt enhanced corporate governance, independent board composition, and risk management frameworks comparable to banks.
- Listing Requirement (for Upper Layer NBFCs)
- RBI mandates that NBFCs identified in the Upper Layer must be listed on a recognised stock exchange within three years of classification.
- This enhances market discipline and transparency.
- Capital Adequacy Norms
- Stricter minimum capital requirements, liquidity coverage ratio (LCR), and exposure norms apply to Upper Layer NBFCs.
- Disclosure and Supervision
- Regular stress testing, public disclosures, and supervisory reporting to RBI.
- Dynamic Classification
- RBI can reclassify NBFCs across layers annually based on changes in their balance sheet size, systemic importance, or risk profile.
