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The groundwork for this regulation, known as Scale Based Regulation (SBR), was established by the RBI on October 22, 2021. This structural framework categorizes NBFCs into four distinctive layers: the base layer, middle layer, upper layer, and top layer, each with its corresponding regulatory implications and criteria.

The Scale Based Regulation (SBR) provides a meticulous methodology for identifying NBFCs in the Upper Layer based on their asset size and scoring methodology. Once an NBFC attains the classification of NBFC-UL, it becomes subject to heightened regulatory requisites for a minimum span of five years, irrespective of its fulfillment of parametric criteria in subsequent years.

Inclusion in the upper layer is significant, as it implies meeting specific asset size and scoring criteria set by the RBI, warranting enhanced regulatory scrutiny. The 15 companies included in this upper layer for 2023-24 exhibit a robust financial standing and strategic importance within the financial landscape.

Notable entities such as L&T Finance, Piramal Capital, Cholamandalam Finance, Indiabulls Housing, Mahindra and Mahindra Financial Services, Tata Capital Financial Services, and PNB Housing Finance were also highlighted in this recent announcement, reinforcing their position in the sector.

Additionally, HDB Financial Services, Aditya Birla Finance, Muthoot Finance, and Bajaj Housing Finance secured their positions in this prestigious list, further reinforcing their role and significance in the NBFC domain.

However, amidst these notable mentions, TMF Business Services Limited (formerly Tata Motors Finance Limited) did not make it to the NBFC-UL list in the current review due to its ongoing business reorganization, as clarified by the RBI.

The RBI's comprehensive regulatory framework divides NBFCs into layers based on their asset size. The base layer encompasses non-deposit-taking NBFCs below the asset size of Rs 1,000 crore, while the middle layer comprises those with an asset size of Rs 1,000 crore and above.

The upper layer typically encompasses NBFCs identified by the RBI as requiring heightened regulatory oversight, based on specific parameters and asset size. The top layer remains ideally unoccupied but can be populated if the RBI deems a substantial increase in potential systemic risk from specific NBFCs in the upper layer, thus necessitating their reclassification into the top layer.

This regulatory move by the RBI underscores the need for a structured and strategic approach to NBFC oversight, ensuring stability and sustainability within the financial sector for the year ahead. The release of this list will likely have far-reaching implications on the operations and compliance efforts of the NBFCs included, setting the tone for the financial landscape in 2023-24. Stay tuned for further updates on this regulatory development and its impact on the financial sector.

LINK: https://rbi.org.in/Scripts/BS_PressReleaseDisplay.aspx?prid=56373