The Reserve Bank of India (RBI) has released a list of 15 non-banking financial companies (NBFCs) which fall under the ‘upper layer’ category. They will be subject to enhanced regulatory requirements.

The top three NBFCs in hierarchical order include LIC Housing Finance, Bajaj Finance and Shriram Finance. 

The other names in the list include Tata Sons, L&T Finance, Piramal Capital & Housing Finance, Cholamandalam Investment and Finance Company, Indiabulls Housing Finance, Mahindra & Mahindra Financial Services, Tata Capital Financial Services, PNB Housing Finance, HDB Financial Services, Aditya Birla Finance, Muthoot Finance and Bajaj Housing Finance.

The TMF Business Services (formerly Tata Motors Finance) could have found a place in the list but was excluded due to its ongoing business reorganisation.

The RBI in October 2021 announced a four-layered regulatory structure for NBFCs to keep watch on the shadow banking sector and minimise risks. Accordingly, the NBFCs have been categorised into Base Layer (NBFC-BL), Middle Layer (NBFC-ML), Upper Layer (NBFC-UL) and Top Layer (NBFC-TL).

The NBFCs in the Upper Layer are categorised as per their asset size and scoring methodology.

In terms of the 'Scale Based Regulation (SBR): A Revised Regulatory Framework for NBFCs' issued in October 2021, once an NBFC is classified as NBFC-UL, it will be subject to enhanced regulatory requirement. This will be for at least for a period of five years from its classification in the layer, even in case it does not meet the parametric criteria in the subsequent year/s.

The RBI’s decision to put NBFCs under stricter regulatory framework came in the backdrop of the collapse of IL&FS in 2018 and later DHFL.