The revised framework removes discretionary assessment and relies solely on a fixed Assets Under Management (AUM) threshold of over Rs 1 trillion for classification, introducing compliance and structural challenges, the ratings firm said.
The revised draft framework for categorising NBFCs into NBFC-UL is unlikely to have any significant impact on existing NBFCs. However, CICs could face challenges with the AUM-based approach, especially in terms of listing equity and enhancing compliance and governance requirements, said Karan Gupta, Director-Financial Institution, India Ratings said.
CICs with consolidated assets approaching or exceeding Rd1 trillion will face disproportionate compliance costs under the new regime. In particular, mandatory listing requirements could prove onerous for several CICs, especially those structured primarily for promoter-level capital allocation rather than public-market access, India Ratings said.
Two key issues are expected to be addressed in the final regulatory guidelines. If the framework is applied on a consolidated rather than a standalone basis for AUM calculation, its scope would extend to several corporate groups operating under the CIC structure, many of which are privately held and unlisted, it added.
NBFC‑ULs are also required to comply with the Large Exposures Framework (LEF), including board-mandated internal exposure limits to key sectors such as NBFCs themselves.
Several CICs have highly concentrated investments in step‑down subsidiaries; the Large Exposures Framework (LEF) application in such cases could prove operationally challenging. The final draft might provide greater regulatory clarity and resolve these concerns, India Ratings said.
The draft framework is unlikely to pose material risks for large incumbent NBFCs. Established players already operate at a scale, governance standard, and capital position aligned with the enhanced regulatory framework, India Ratings said.
Given that the revised classification will be conducted annually and rests on a single quantified criterion, India Ratings expects NBFCs approaching the threshold to proactively adjust business plans and operating practices to manage potential regulatory escalation.
