Asset-Size Creep and the Middle Layer
Suryodaya Capital is a non-deposit-taking NBFC-ICC. Its audited balance sheet as on 31 March 2025 shows total assets of ₹1,180 crore, up from ₹940 crore a year earlier. The growth came from a ₹210 crore book of unsecured personal loans sourced through a fintech platform. The company has 14 branches, a 9-member board with no independent director, and no audit committee. Its CRAR is 17.2%. It has never listed its shares. The CFO argues that because the company does not accept deposits, the new asset size has no regulatory consequence beyond annual filing. The board is scheduled to approve the FY2026 plan, which assumes another 40% growth, and wants to declare a dividend. Its statutory auditor has flagged the absence of a board-level risk committee. There are no group entities.
1. How should Suryodaya Capital be classified under RBI's Scale Based Regulation for FY2025-26? Explain the reasoning, including the asset-size boundary and the effect of the company's non-deposit-taking status.
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Classification: NBFC-ICC in the Middle Layer.
Under the Scale Based Regulation, a non-deposit-taking NBFC with asset size above ₹1,000 crore falls in the Middle Layer. Asset size is taken from the audited balance sheet as on 31 March, and the classification applies for the following financial year. Suryodaya's audited assets of ₹1,180 crore exceed the ₹1,000 crore boundary, so it cannot remain in the Base Layer for FY2025-26.
The CFO's reasoning confuses two different questions. Non-deposit-taking status determines which requirements apply; it does not determine the layer. A ₹1,180 crore non-deposit NBFC is still a Middle Layer NBFC. The prior year's ₹940 crore figure is relevant only to show that the boundary has now been crossed. The company cannot elect to stay in the Base Layer because it dislikes the consequences.
2. Which additional regulatory and governance requirements are now triggered, and which commonly assumed requirements do not apply? Give the reasoning for each.
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The starting point is the layer, not the product. Middle Layer status triggers, among other things:
- Capital adequacy: the 15% CRAR requirement applies to NBFC-ICC in the Middle Layer. The company's 17.2% is above the minimum, but the buffer is relevant to its 40% growth plan.
- Credit concentration norms: single-borrower exposure is capped at 15% of Tier I capital and single-group exposure at 25%. The unsecured personal-loan book must be tested against these limits.
- Board committees: an Audit Committee and a Risk Management Committee become mandatory for Middle Layer NBFCs; the board composition also needs review against SBR governance expectations.
- Disclosures and policy frameworks: enhanced disclosures, a board-approved risk framework, and compliance with the applicable fair practices and outsourcing requirements.
What is not triggered merely by Middle Layer status:
- Liquidity Coverage Ratio: LCR applies to deposit-taking NBFCs and to non-deposit NBFCs with asset size of ₹5,000 crore or more, so ₹1,180 crore does not attract it.
- Mandatory listing: the three-year listing requirement applies to NBFCs in the Upper Layer, not the Middle Layer.
- Public deposit rules: these apply to deposit-taking NBFCs, which this company is not.
3. The board wants to declare a dividend and approve 40% growth. What should the board consider before doing either?
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The board should treat the layer migration as a governance and capital-planning event, not a filing formality.
- Dividend: a dividend that strips capital just as the company enters a higher compliance layer and plans 40% growth is imprudent. The board should test the payout against CRAR, net NPA, liquidity, and the capital needed for the growth plan. It should also confirm that the dividend is based on audited profits and does not breach any applicable RBI dividend or capital condition.
- Growth: 40% growth would take assets to roughly ₹1,650 crore. That is still Middle Layer, but it increases concentration, unsecured credit risk, and dependence on the fintech sourcing arrangement. The board should require a capital plan, stress testing of the unsecured book, and vendor/outsourcing due diligence before approving the plan.
- Governance build-out: the audit and risk committees, independent board oversight, and a board-approved risk appetite should be in place before the growth is executed. The auditor's flag on the missing risk committee should be resolved, not minuted and forgotten.