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RBI proposes 4-tier structure for tighter regulation of NBFCs

Posted Date : 23-Jan-2021 , 11:03:04 am | Posted By CASANSAAR print Print
The Reserve Bank of India (RBI) has proposed a tighter regulatory framework for non-banking financial companies (NBFCs) by creating a four-tier structure with a progressive increase in intensity of regulation.

In its discussion paper on revised regulatory framework for NBFCs, the RBI has said the regulatory and supervisory framework of NBFCs should be based on a four-layered structure: Base Layer, Middle Layer, Upper Layer and a possible Top Layer. It has also proposed classification of non-performing assets (NPAs) of base layer NBFCs from 180 days to 90 days overdue. NBFCs in lower layer will be known as NBFC-Base Layer (NBFC-BL). NBFCs in middle layer will be known as NBFC-Middle Layer (NBFC-ML). An NBFC in the Upper Layer will be known as NBFC-Upper Layer (NBFC-UL) and will invite a new regulatory superstructure. There is also a Top Layer, ideally supposed to be empty.

Once an NBFC is identified as NBFC-UL, it will be subject to enhanced regulatory requirement at least for four years from its last appearance in the category, even where it does not meet the parametric criteria in the subsequent year. “Hence, if an identified NBFC-UL does not meet the criteria for classification for four consecutive years, it will move out of the enhanced regulatory framework,” it said. The NBFC sector has seen tremendous growth in recent years. In last five years alone, size of balance sheet of NBFCs (including HFCs) has more than doubled from Rs 20.72 lakh crore (2015) to Rs 49.22 lakh crore (2020).

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