The Reserve Bank of India (RBI) has steadily refined the nomenclature and regulatory norms for Non-Banking Financial Companies (NBFCs) through its Scale-Based Regulatory (SBR) Framework. This approach ensures that NBFCs are classified clearly, monitored effectively, and regulated proportionally to their size and risk.
Let’s break it down.
Nomenclature of NBFCs
NBFCs are broadly categorized based on their liabilities, activities, and asset size:
*Deposit-Taking NBFCs (NBFC-D)→ Authorized to accept public deposits and closely monitored to safeguard depositor interests.
* Non-Deposit-Taking NBFCs (NBFC-ND) → Do not accept public deposits; rely on borrowings and market instruments for funding.
* Specialized NBFCs → Tailored to specific functions:
* Peer-to-Peer Lending Platforms (NBFC-P2P)
* Account Aggregators (NBFC-AA)
* Core Investment Companies (CIC)
* Housing Finance Companies (HFC)
* Infrastructure Finance Companies (NBFC-IFC)
Layered Classification under SBR
The SBR framework maps nomenclature into four regulatory layers:
1. Base Layer (NBFC-BL)
* Non-deposit NBFCs with assets < ₹1,000 crore
* NBFC-P2P, NBFC-AA, NOFHC, and entities with no public funds or customer interface
2. Middle Layer (NBFC-ML)
* All NBFC-Ds
* Large NBFC-NDs (assets > ₹1,000 crore)
* Systemically important categories like SPDs, CICs, HFCs, NBFC-IFCs, and IDF-NBFCs
3. Upper Layer (NBFC-UL)
* Top ten NBFCs by asset size (automatically included)
* Other systemically significant NBFCs identified by RBI
4. Top Layer (NBFC-TL)
* Reserved for entities posing exceptionally high systemic risk
* Expected to remain empty under normal circumstances
Regulatory Norms for NBFCs
The regulatory framework is risk-sensitive and proportional, tightening as an NBFC moves up the pyramid:
* Capital Adequacy → Stricter requirements for NBFC-UL and NBFC-TL to ensure resilience.
* Exposure & Asset Classification → Prudential limits on exposures and detailed asset quality norms for NBFC-Ds and large NBFC-NDs.
* Governance & Disclosures → Stronger board oversight, higher transparency, and regular reporting for systemically important NBFCs.
* KYC & AML Compliance → Mandatory adherence across all NBFCs to protect customers and prevent misuse of financial channels.
* Activity-Specific Norms → Additional tailored rules for those engaged in infrastructure financing, housing finance, microfinance, investments, or P2P operations.
Conclusion
The RBI’s SBR framework creates a risk-based, activity-focused, and layered system for NBFCs. By aligning nomenclature with proportional regulation, it balances financial innovation with systemic safety, ensuring India’s NBFC sector remains both dynamic and stable.
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Disclaimer:
The information provided herein is exclusively for educational purposes based on publicly available sources and subject to change. The author shall not be responsible for any direct/indirect loss or liability incurred by the reader for taking any financial/real estate decisions based on the contents and information. Please consult your financial advisor before making any financial decision.
