RBI proposes 4-layer regulatory structure for NBFCs

♦️The Reserve Bank proposed a four-layered regulatory structure for non-banking financial companies (NBFCs) with progressive increase in intensity of regulation. According to a discussion paper released by the RBI, the NBFCs will be split into four layers -- base, middle, upper and top.

💬The base layer will consist of NBFCs currently classified as non-systemically important NBFCs (NBFC-non deposit taking), besides Type I NBFCs, non-operative financial holding company, NBFC-P2P (peer to peer lending platform) and NBFC-AA (account aggregator).

💬The middle layer will consist of all non-deposit taking NBFCs classified currently as NBFC-ND-SI (systematically important non-deposit taking company) and all deposit taking NBFCs.

💬The upper layer would comprise only those NBFCs which are specifically identified as systemically significant, based on a set of parameters.

💬The paper further said the top layer is supposed to remain empty. The layer can get populated in case the RBI takes a view that there has been unsustainable increase in the systemic risk spill-overs from specific NBFCs in the upper layer. Such NBFCs judged to be extreme in supervisory risk perception would be pushed to the top layer from the upper layer. NBFCs in this layer will be subject to higher capital charge, including capital conservation buffers. There will be enhanced and more intensive supervisory engagement with these NBFCs

Source: Outlook India

==============================