Recently, RBI released a circular on 14th September 2023 notifying the List of Companies (NBFCs) in Upper Layer for the year 2023-24. The highlight of the circular has been the NBFC, which qualified the requirements of an NBFC in the Upper Layer; however, it still failed to make a space for itself in the list [TMF Business Services Limited, formerly Tata Motors Finance Limited]. These qualifications of layers are primarily mapped with Scale Based Regulations, but in certain circumstances, not meeting the external criteria makes a mark. The RBI List of the 16 NBFCs addressed under the upper layer is as follows:

Sl. No.NBFCCategory
1LIC Housing Finance LimitedDeposit-taking HFC
2Bajaj Finance LimitedDeposit-taking NBFC-ICC
3Shriram Transport Finance Company LimitedDeposit-taking NBFC-ICC
4Tata Sons Private LimitedCIC
5L & T Finance LimitedNon-deposit taking NBFC-ICC
6Indiabulls Housing Finance LimitedNon-deposit taking HFC
7Piramal Capital & Housing Finance LimitedNon-deposit taking HFC
8Cholamandalam Investment and Finance Company LimitedNon-deposit taking NBFC-ICC
9Shanghvi Finance Private LimitedNon-deposit taking NBFC-ICC
10Mahindra & Mahindra Financial Services LimitedDeposit-taking NBFC-ICC
11PNB Housing Finance LimitedDeposit-taking HFC
12Tata Capital Financial Services LimitedNon-deposit taking NBFC-ICC
13Aditya Birla Finance LimitedNon-deposit taking NBFC-ICC
14HDB Financial Services LimitedNon-deposit taking NBFC-ICC
15Muthoot Finance LimitedNon-deposit taking NBFC-ICC
16Bajaj Housing Finance LimitedNon-deposit taking HFC

What is NBFC?

NBFC, standing for Non-Banking Financial Company, is a form of company recognized under the Companies Act of 1956. This form of company deals with the business of all forms of financial assistance such as loans & advances, acquisition of shares, bonds, debentures, securities which are issued by Government/Local Authority or other similar form of securities such as leasing, insurance business, hire-purchase or chit business. However, such businesses exclude any regular business in principal form like that of agricultural, industry, purchase, or sale of any goods excluding securities.

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It is important to note that not all NBFCs are regulated under RBI. NBFCs such as Housing Finance Companies, Stock Exchanges, Merchant Banking Companies, Venture Capital Fund Companies, Companies engaged in the business of stock-broking/sub-broking, Nidhi Companies, Insurance companies, and Chit Fund Companies are exempted from registration requirements under the RBI Act and therefore, are regulated under different authoritative bodies like SEBI.

Scale-based Regulation and the “Why?”

NBFCs were given a special status by the RBI as a route to promote financial or bank-like services in remote areas where the accessibility of the Banks was limited. Owing to this aim, the regulations for such NBFCs were made a bit more relaxed than that of the Banks. However, in recent years, the hike witnessed in the services and expansion of the NBFCs has generated the scope of risk associated with the same, bringing RBI’s attention to its regulatory framework. Every NBFC registered under the Companies Act is classified by the RBI into different categories by analyzing different factors such as Comprehensive Risk Perception, Operations Size, and other activities. To make it formulative, RBI introduced Scale Based Regulations, which came into force on 1st October 2022. RBI introduced these based Regulations on 22 October 2021 to restructure the set of regulations for NBFCs by keeping certain provisions inert, few revised and mandates introduced, which would be subject to varied regulatory frameworks, further leading to the categorization of four types of NBFCs.

Setting forth the regulatory framework as per the categorization, the following were the aiming factors:

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NBFC restructuration: NBFC is not a single of its kind but holds several different forms of companies providing similar or similar services with basic differences such as Infrastructure Investment Companies, Microfinance Institutions, and Systemically Important. Core Investment Company, Non-Systemically Important, Deposit-taking, or non-deposit-taking, etc. These many variations paved the way for the creation of four dedicated layers [Base, Middle, Upper, and Top Layer] on the basis of activities and asset size.

Effective Governance: Following the categorization of layers, the regulatory frameworks were also to be modelled for better governance. In furtherance of the same, Internal Committees and assessments are constituted, and the requirement of Additional disclosure by certain layers has been demanded. Moreover, the governance of different layers varies according to the thresholds of respective NBFCs.

Capital Adequacy Assessment: Capital assessment of NBFCs is required in proportion to risk to the business following the same manner specified for the commercial banks (prescribed by Basel III Capital Regulations) for evaluation of adequate Capital to support risks in the operations of NBFCs and development of Internal Risk Management Techniques and its usage.

Core Financial Service: As that of Core Banking Solution adopted (by Banks), the solution for core financial services is required to be adopted by NBFC Middle and upper Layer and has 10 or more Fixed Point Service Delivery Units. Such implementation is required to be reported to RBI quarterly.

What are the types of layers?

The NBFCs registered under the Companies Act are classified into the following four types:

types of nbfc layers

Base Layer

NBFCs falling in one of the following categories of the company are regulated under the Base Layer Regulatory Framework.

  1. Non-deposit-taking NBFCs under the asset size of ₹1000 crore
  2. NBFC-Peer-to-Peer Lending Platform (NBFC-P2P)
  3. Non-Operative Financial Holding Company (NOFHC)
  4. NBFC-Account Aggregator (NBFC-AA)
  5. NBFCs not availing public funds with no customer interface
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Middle Layer

NBFCs falling into one of the following categories of the company are regulated under the Middle Layer Regulatory Framework.

  1. All deposit-taking NBFCs (NBFC-Ds) [irrespective of the asset size]
  2. Non-deposit-taking NBFCs [asset size of ₹1000 crore and above]
  3. Standalone Primary Dealers (SPDs)
  4. Infrastructure Debt Fund– NBFCs (IDF-NBFCs)
  5. Housing Finance Companies (HFCs)
  6. Core Investment Companies (CICs)
  7. Infrastructure Finance Companies (NBFC-IFCs)

NBFC-Ds, CICs, NBFC-IFCs, HFCs, or Government NBFCs may be included in the Middle Layer or the Upper Layer as per case. However, these will never be subject to the Base Layer. Whereas SPDs and IDF-NBFCs will always be in the Middle Layer.

Upper Layer

In order to categorize an NBFC in the Upper Layer, the evaluation is done on the basis of certain parameters and methodology weightage ranging to 70% and 30% evaluated annually (31st March) based on their performance. On the contrary, the top 10 NBFCs (in terms of asset size) will fall within this category, ineffective of any other factor.

Top Layer

Any NBFC whose potential systemic risk is recognized by the RBI as substantially increasing is shifted to the Top layer from the Upper Layer. As per the current practice, the Top Layer remains empty, with no NBFCs listed under this head.


RBI has listed 16 companies under the Upper Layer of the NBFC. Despite the meeting of requirements, TMF Business Services Limited was not listed in the upper layer. However, once a company is listed as NBFC-UL, it is subject to advanced regulatory requirements for at least five years from the declaration made, even if it fails to meet parameters or to be listed in the Upper Layer again in the following years.

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