Direct Tax Services
Select Your Location
The governing body for all Non-Banking Financial companies in India is the (RBI) Reserve Bank of India. The Scale Based Regulation (SBR), which takes effect on October 22, 2021, was introduced by the RBI to help current NBFCs’ regulatory frameworks keep up with their shifting risk profiles. Before implementing the Scale Based Regulation Framework, NBFCs were categorised as Systemically Important (SI) or Non-Systemically Important (NSI) based on the total risk associated with their operations and the significance of those operations from an economic perspective. NBFCs are governed by Master Direction. If their asset size is up to Rs. 500 crores, they are classified as NSI, and those with 500 crores or more, are categorised as SI, depending on their asset size.
Table of Contents
The size, activity, and perceived riskiness of NBFCs will determine the regulatory structure in the four layers of NBFC. NBFCs in the lowest layer are referred to as NBFC-Base Layer (NBFC-BL). The terms “NBFC – Middle Layer and upper Layer shall be known as NBFC – Middle Layer (NBFC-ML) and NBFC-upper layer (NBFC-UL), respectively. The Top Layer, often called NBFC – Top Layer, is ideally anticipated to remain empty (NBFC-TL).
Non-deposit taking NBFCs with assets under ₹1000 crore
The following NBFCs will always be in the Base Layer of the Regulation Structure when engaging in these activities:
First and foremost, it’s essential to realise that the categorisation and Layer that the NBFC belongs to will influence the rules, regulations, and compliances that will apply to it. In comparison to an NBFC-NSI (Non-Systematically Important), an NBFC-SI (Systematically Important) has been subject to stricter restrictions (such as the need for board committees, concentration norms, etc.).
Because of this, if it is stated that the subject entities must comply with or continue complying with SI Directions, then such entities must continue with strict compliance. In contrast, other entities in the same Layer (BL entities) would continue with lax norms under NSI Directions. However, if it is claimed that such subject entities are now BL and may obey NSI Directions, those companies would be released from various compliances.
We must first examine the purpose of the SBR Framework in order to respond to the problem statement. The following was stated in the Announcement on Developmental and Regulatory Policies dated December 4, 2020, “The regulatory framework controlling the NBFC sector is based on the notion of proportionality, allowing for the sector to access sufficient operational flexibility through calibrated regulatory measures. Let us examine whether the base layer amenable to Non-systematically Important or Systematically important NBFCs.
The same regulations presently apply to NBFC-ND and will continue to apply to NBFC-BL. But, as the threshold is being raised to ₹1000 crore, improved governance and disclosure rules might be added to the legal framework. The exact regulatory adjustments will be regarding the SBR Framework released by the RBI. The aforementioned announcement makes many references to “NBFC-ND” in contrast to NBFC-ND-SI but does not define the term.
As of October 1, 2022, NBFC-D shall mean Non-Banking Financial Companies-Base Layer, and all references to NBFC-D and NBFC-ND-SI shall mean NBFC-ML or NBFC-UL, as applicable. It is clear that current NBFC-ND-SIs will be referred to as NBFC-BL if their asset size is $500 million or more but less than ₹1000 crore (except for those who must necessarily be included in the Middle Layer). It is abundantly clear that references to NBFC-ND-SI only pertain to NBFC-ML and NBFC-UL (where applicable) and that NBFC-ND only refers to NBFC-ND-NSI.
“Regulation by proportion” is the goal of the SBR Framework. Consequently, it is impossible to argue that the regulatory goal was to create a sub-classification within the BL despite the existence of numerous levels in the form of BL, ML, UL, and TL. Such a reading would be illogical because it would make no sense to have a Middle layer and then apply SI Directions to things that lie under that Layer as well as to a specific area of the Base layer.
All of the NBFCs in the Base Layer (including the subject entities with asset sizes greater than Rs. 500 crores but less than Rs. 1000 crores) shall be subject to compliance with the NBFC-ND-NSI Directions, as established by the provisions of the SBR Framework. The systemic classification that existed before the object became a base layer may be all that is being referenced by the RBI List (as indicated above). The SBR framework does not mention requiring a subject entity to keep up with NBFC-SI rules. The subject entity can switch to NBFC-NSI regulations as a result.
Also Read:Decoding the Growth of NBFCs in IndiaEmerging Prospects for NBFCs in the Indian Financial Landscape in 2023
I am a driven and meticulous professional who completed B.Com BL (Hons) from Tamil Nadu Dr. Ambedkar Law University and completed Master of Laws in specialization (Criminal Law with Cyber Crimes). I have extensive experience in Criminal Litigation and want to utilise my legal knowledge in writing also I have proficiency in writing legitimate content with comprehensive research. My core areas of interest are Business Law, Intellectual Property Rights, and Cyber crimes.
Many investors use fixed deposits as their primary investment vehicle. Investors with a high-ri...
The main idea of CDS, which was initially to give banks a way to transfer credit exposure, has...
Black money has been the subject of heated political debate in India for a long time. Successiv...
The Apex Court pronounced a judgement in the case titled Tata Motors Vs The Brihan Mumbai Elect...
Since economies are moving towards digitalisation and making it feasible to conduct transaction...
The Alternative Investment Funds (AIFs) Pro-rata and Pari-Passu Rights Proposal Consultation Pa...
The Financial Action Task Force, i.e. FATF (the Force), is the global money laundering and terr...
Advance tax refers to the payment of the tax liability before the end of the relevant financia...
On 11.12.15, the Hon’ble Delhi High Court (HC) pronounced a landmark judgement in the case ti...
Money laundering can be defined as the process of illegal concealment of the origin of money ob...
Are you human?: 5 + 3 =
Easy Payment Options Available No Spam. No Sharing. 100% Confidentiality
There have been occasions when people who are new to Indian Financial Market wonder what is the need for NBFC Regis...
16 Aug, 2021
The Ministry of Corporate Affairs (MCA) in its notification dated 24th February 2020 has notified that the eligibil...
05 Mar, 2020
Red Herring Top 100 Asia enlists outstanding entrepreneurs and promising companies. It selects the award winners from approximately 2000 privately financed companies each year in the Asia. Since 1996, Red Herring has kept tabs on these up-and-comers. Red Herring editors were among the first to recognize that companies such as Google, Facebook, Kakao, Alibaba, Twitter, Rakuten, Salesforce.com, Xiaomi and YouTube would change the way we live and work.
Researchers have found out that organization using new technologies in their accounting and tax have better productivity as compared to those using the traditional methods. Complying with the recent technological trends in the accounting industry, Enterslice was formed to focus on the emerging start up companies and bring innovation in their traditional Chartered Accountants & Legal profession services, disrupt traditional Chartered Accountants practice mechanism & Lawyers.
Stay updated with all the latest legal updates. Just enter your email address and subscribe for free!
Chat on Whatsapp
Hey I'm Suman. Let's Talk!