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The Reserve Bank of India’s draft framework for classifying upper layer non-banking financial companies is expected to increase compliance burdens for core investment companies, according to India Ratings. The proposal sets an assets under management threshold of INR 1 lakh crore for NBFC-UL classification and may require mandatory listing, impacting privately held CICs with concentrated group exposures. The report noted that while the framework remains largely neutral for most NBFCs, CICs could face higher governance and regulatory costs. The draft has also drawn attention due to its implications for large entities such as Tata Sons, which exceeds the proposed AUM threshold.
The Reserve Bank of India’s draft framework for categorising upper layer non-banking financial companies (NBFC-ULs) is expected to impose higher compliance requirements on core investment companies (CICs), particularly those with assets under management exceeding INR 1 lakh crore, according to a report released earlier this week by India Ratings in Mumbai. Advertisement
The draft proposes that NBFCs crossing the INR 1 lakh crore AUM threshold be classified as NBFC-ULs, bringing them under a tighter regulatory regime. The framework may also introduce mandatory listing requirements, which India Ratings indicated could be onerous for CICs that are primarily structured for promoter-level capital allocation rather than public market participation.
The development has gained attention amid ongoing discussions around the regulatory treatment of large CICs, including Tata Sons, which reported assets exceeding INR 1.7 lakh crore as of March in the past month. Market participants have been assessing whether the revised framework would require such entities to list, depending on the final structure of the norms.
India Ratings stated that while the proposed NBFC-UL framework is broadly neutral for the wider NBFC sector, CICs could emerge as outliers due to the scale of their consolidated balance sheets. It indicated that CICs with assets approaching or exceeding the threshold would face disproportionately higher compliance costs under the revised regulatory regime.
A key concern highlighted in the report relates to the methodology for calculating AUM. If the framework is applied on a consolidated basis rather than on a standalone level, it could expand the scope of the regulations to include several corporate groups operating through CIC structures, many of which are privately held and unlisted.
The report also pointed to operational challenges arising from the application of the large exposures framework (LEF) to CICs. It noted that such entities typically maintain concentrated investments in step-down subsidiaries, which could complicate compliance with exposure norms under the proposed rules.
According to Karan Gupta, director for financial institutions at India Ratings, the revised draft is unlikely to materially affect existing NBFCs but may pose challenges for CICs, particularly in relation to equity listing requirements and enhanced governance standards.
The rating agency added that the final version of the framework could provide further clarity and potentially address concerns raised by market participants, especially regarding the treatment of consolidated assets and applicability to group-level structures.
Source - PTI
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