RBI to Release Updated List of Upper Layer NBFCs Soon

Context:

The Reserve Bank of India (RBI) will soon release the updated list of Upper Layer NBFCs (NBFC-UL), Governor Sanjay Malhotra said at the post-policy press conference. The central bank has not released a list of Upper Layer NBFCs for the financial year ended March 2026. Meanwhile, Tata Sons, the holding company of the Tata Group, has sought to de-register as an Upper Layer NBFC, which would exempt it from the mandatory listing requirement (deadline was September 2025). The RBI has said the matter is under examination, with the process for finalising the revised list underway.

About the Scale-Based Regulation (SBR) for NBFCs:

• The RBI introduced a new Scale-Based Regulation (SBR) framework for NBFCs, effective 1 October 2022.
• Under this framework, NBFCs are classified into four layers, depending on size, activity, and perceived systemic risk:
  • Base Layer (NBFC-BL): Mainly non-deposit-taking NBFCs with assets below ₹1,000 crore, and specified categories. They face the lightest regulation.
  • Middle Layer (NBFC-ML): Deposit-taking NBFCs, larger non-deposit-taking NBFCs (above ₹1,000 crore in assets), and specific categories like standalone primary dealers, infrastructure finance companies, and housing finance companies. They face tighter regulation.
  • Upper Layer (NBFC-UL): NBFCs identified by the RBI as systemically significant, based on size, interconnectedness, complexity, and supervisory inputs. They face the strictest regulation, close to bank-like norms, and are required to be listed within 3 years.
  • Top Layer (NBFC-TL): A reserved layer that the RBI can populate if it finds certain NBFCs in the Upper Layer pose extreme systemic risk. Currently empty.

About the Upper Layer NBFCs and Listing Requirement:

• The RBI identifies Upper Layer NBFCs annually, based on scoring methodology that includes size, leverage, interconnectedness, complexity, and supervisory factors.
• Once identified, Upper Layer NBFCs face additional regulatory requirements:
  • Higher capital adequacy norms.
  • Larger exposure limits and tighter governance norms.
  • Common Equity Tier 1 capital requirements similar to banks.
  • Mandatory listing within 3 years of identification (deadline for the current batch was September 2025).
• Tata Sons was identified as an Upper Layer NBFC in the initial list of 2022-23, which would have required it to be listed by September 2025.
• Tata Sons has been seeking to de-register as an Upper Layer NBFC, which would allow it to avoid the listing requirement, but the request remains under RBI examination.

About NBFCs:

• Non-Banking Financial Companies (NBFCs) are financial institutions that lend money, invest in securities, and offer financial services, but cannot accept demand deposits (current and savings accounts) like a bank.
• They are regulated by the RBI under the Reserve Bank of India Act, 1934.
• Different types of NBFCs include Loan Companies, Investment Companies, Asset Finance Companies, Microfinance Institutions (MFIs), Infrastructure Finance Companies, and Housing Finance Companies.
• NBFCs play a critical role in financial inclusion, especially for MSMEs, consumers, vehicle finance, and underserved geographies.

Practice MCQs

Q1. With reference to the RBI’s announcement on Upper Layer NBFCs, consider the following statements:

1. The RBI Governor said that the list of Upper Layer NBFCs will be released soon.
2. The RBI has not released a list of Upper Layer NBFCs for the financial year ended March 2026.
3. Tata Sons has sought to de-register as an Upper Layer NBFC, which would exempt it from the mandatory listing requirement.
4. The matter of Tata Sons’ application is under examination by the RBI.

How many of the above statements are correct?

(a) Only one (b) Only two (c) Only three (d) All four (e) None

Q2. With reference to the Scale-Based Regulation (SBR) framework for NBFCs, consider the following statements:

1. The SBR framework became effective on 1 October 2022.
2. It classifies NBFCs into four layers: Base Layer, Middle Layer, Upper Layer, and Top Layer.
3. Upper Layer NBFCs face stricter regulation, including a mandatory listing requirement within three years.
4. The Top Layer is reserved for NBFCs posing extreme systemic risk and is currently empty.

How many of the above statements are correct?

(a) Only one (b) Only two (c) Only three (d) All four (e) None

Q3. With reference to Non-Banking Financial Companies (NBFCs) in India, consider the following statements:

1. NBFCs are regulated by the Reserve Bank of India under the RBI Act, 1934.
2. NBFCs can lend money, invest in securities, and offer financial services.
3. NBFCs cannot accept demand deposits like current and savings accounts.
4. NBFCs play a significant role in financial inclusion, especially for MSMEs and underserved geographies.

Which of the above are correct?

(a) 1, 2 and 3 only (b) 1, 3 and 4 only (c) 2 and 4 only (d) 1 and 4 only (e) All four

Q4. With reference to Tata Sons and Upper Layer NBFC classification, consider the following statements:

1. Tata Sons is the holding company of the Tata Group.
2. Tata Sons was identified as an Upper Layer NBFC in the initial list released by the RBI under the SBR framework.
3. The mandatory listing deadline for the current batch of Upper Layer NBFCs was September 2025.
4. The RBI has confirmed that it has formally accepted Tata Sons’ application for de-registration.

Which of the above are correct?

(a) 1, 2 and 3 only (b) 1, 3 and 4 only (c) 2 and 4 only (d) 1 and 4 only (e) All four

(Statement 4 is wrong; the RBI has said that Tata Sons’ application is under examination, NOT that it has been formally accepted.)

Answer Key

1. (d), All four statements are correct.
2. (d), All four statements are correct.
3. (e), All four statements are correct.
4. (a), Statements 1, 2, 3 are correct; Statement 4 is wrong because the RBI has only said the application is under examination, not that it has been accepted.