RBI's Proposed Changes Could Boost Upper Layer NBFC Assets to 70%
RBI norms may raise NBFC upper layer asset share to 70%, says CareEdge
Business Standard
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The Reserve Bank of India's proposed amendments to the scale-based regulatory framework may increase the asset share of upper-layer non-banking financial companies (NBFCs) to nearly 70% of the sector's total assets by September 2025, up from 30%. The changes aim to simplify the classification of NBFCs and include government-backed entities.
- 01Proposed changes may increase upper-layer NBFC assets to 70% of total sector assets.
- 02The number of upper-layer NBFCs could rise from 15 to 19.
- 03A single asset-size threshold of ₹1 trillion will replace the current two-pronged methodology.
- 04The asset-size threshold will be reviewed every five years.
- 05Greater clarity is needed on including off-balance-sheet exposures in the asset threshold.
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The Reserve Bank of India's (RBI) proposed amendments to the scale-based regulatory (SBR) framework could significantly reshape the non-banking financial company (NBFC) landscape. According to CareEdge Ratings, if implemented, upper-layer NBFCs may account for nearly 70% of the sector's total assets by September 2025, a substantial increase from the current 30%. The proposed changes would expand the number of upper-layer NBFCs from 15 to 19 by including government-backed firms. The RBI's draft amendments suggest a simplified classification system with a single asset-size threshold of ₹1 trillion (roughly $12 billion USD), replacing the existing two-pronged approach. This new framework aims to enhance regulatory clarity and oversight for market participants by categorizing NBFCs based on size, interconnectedness, and complexity. However, CareEdge has raised concerns regarding the lack of clarity on whether off-balance-sheet exposures will be included in the asset threshold and how it will be assessed. The agency emphasizes that the proposed changes are a significant step toward rationalizing the identification criteria for NBFCs, ultimately strengthening systemic oversight.
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The proposed changes could lead to increased regulatory oversight of larger NBFCs, potentially affecting lending practices and interest rates for consumers.
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