RBI Releases New List of NBFC-Upper Layer; Four Government Financial Companies Included for the First Time
The RBI has released the revised list of NBFC-Upper Layer (NBFC-UL) entities for the financial year 2026-27, comprising a total of 17 NBFCs, up from 15 in the previous list. REC, PFC, IRFC, and HUDCO have been included in the 'Upper Layer' for the first time, subjecting them to stricter regulatory oversight. Under the RBI's Scale-Based Regulation (SBR) framework, NBFCs are categorized into Base, Middle, Upper, and Top layers; the Upper Layer consists of large and systemically significant NBFCs. Tata Sons has been retained in the list, whereas PNB Housing Finance and Sammaan Capital have been excluded due to revised eligibility criteria.
The Reserve Bank of India (RBI) has released the revised list of Non-Banking Financial Companies–Upper Layer (NBFC-UL) for the financial year 2026-27. The new list includes a total of 17 NBFCs, compared to 15 entities in the previous list. This change follows the RBI's review of the identification framework for NBFC-ULs and the implementation of revised criteria.
Four Government NBFCs Included in Upper Layer for the First Time:
REC Limited, Power Finance Corporation (PFC), Indian Railway Finance Corporation (IRFC), and Housing & Urban Development Corporation (HUDCO) have been included in the NBFC-UL category for the first time. This development is particularly significant as the RBI has moved to bring government-owned NBFCs under the ambit of stricter regulatory oversight as part of the revised Scale-Based Regulation (SBR) framework.
What is Scale-Based Regulation for NBFCs?
The RBI has implemented Scale-Based Regulation (SBR) for NBFCs, categorizing them into four layers—Base Layer, Middle Layer, Upper Layer, and Top Layer—based on their size, activities, and risk profile. The 'Upper Layer' comprises large NBFCs of significant systemic importance, subject to relatively stricter regulatory and supervisory provisions.
Basis and Significance of Inclusion in the Upper Layer:
The revised framework employs various criteria—including Assets Under Management (AUM)—and a scoring methodology to identify large NBFCs. The overarching objective is to ensure that NBFCs capable of significantly impacting the financial system are subject to adequate oversight regarding capital, risk management, large exposures, and corporate governance. The RBI’s Scale-Based Regulation (SBR) framework incorporates provisions such as enhanced regulatory oversight and a large-exposure framework for NBFC-ULs.
Key Facts Regarding Tata Sons and Other Companies:
Tata Sons Private Limited has been retained in the Upper Layer list. However, its inclusion in this list does not predetermine the outcome of any pending application regarding its NBFC registration. Conversely, PNB Housing Finance and Sammaan Capital are excluded from the new list as they do not meet the revised eligibility criteria. Under RBI regulations, an NBFC classified in the Upper Layer may continue to be subject to the enhanced regulatory framework for a specified period, even after ceasing to meet the eligibility criteria.
Significance for UPSC:
This topic is crucial in the context of the Indian financial system, banking reforms, NBFCs, financial stability, and the RBI's regulatory role. Unlike banks, NBFCs do not accept deposits from the public, yet they play a vital role in lending, consumer finance, infrastructure financing, and other financial services. Risks originating in large NBFCs can propagate through the financial system; therefore, the RBI's Scale-Based Regulation approach aims to contain systemic risk, enhance risk-based supervision, and ensure financial stability. This issue is relevant to UPSC GS Paper III, covering topics such as the Indian Economy, the Banking Sector, Financial Regulation, Financial Stability, and Systemic Risk.
