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Subject: Differentiated Banks

  • RBI keeps Tata Sons in the NBFC Upper Layer list

    Why in the News

    The Reserve Bank of India (RBI) has retained Tata Sons in the NBFC Upper Layer (NBFC-UL) under its Scale Based Regulation (SBR) framework. This revives the requirement for Tata Sons to list on a stock exchange, while its request for deregistration as an NBFC remains under RBI’s consideration.

    What is the NBFC Upper Layer under the Scale Based Regulation (SBR) Framework?

    • Definition: The Scale Based Regulation (SBR) framework classifies NBFCs into four layers based on their size, activity and risk profile.
    • Upper Layer (NBFC-UL): Covers large, systemically important NBFCs requiring enhanced regulatory oversight.
    • Eligibility: RBI identifies NBFC-UL entities with assets of Rs 1 lakh crore or more.
    • Mandatory Listing: An NBFC classified in the Upper Layer must list on a recognised stock exchange within three years.
    • Minimum Tenure: Once classified, an NBFC remains in the Upper Layer for at least five years, even if it later falls below the threshold.

    What is a Core Investment Company (CIC)?

    • Definition: A Core Investment Company (CIC) is an NBFC that primarily holds investments in its group companies rather than engaging in public lending.
    • Tata Sons: RBI classifies Tata Sons as a Core Investment Company under the NBFC Upper Layer.

    Why has the listing issue resurfaced?

    • Debt Repaid: Tata Sons repaid its borrowings in 2024 and no longer directly raises public funds.
    • Indirect Public Funds: RBI considers investments held by listed Tata companies in Tata Sons as an indirect form of public funding.
    • Deregistration Pending: Tata Sons has sought deregistration as an NBFC, but RBI has stated that the Upper Layer classification is without prejudice to that request.
    • Internal Differences: The proposed listing has divided the Tata Trusts, while the Pallonji Mistry Group supports listing to unlock shareholder value.

    What additional regulations apply to NBFC Upper Layer entities?

    • Capital Requirements: Higher capital adequacy norms, including Common Equity Tier 1 (CET1) requirements.
    • Governance Standards: Mandatory board committees, stronger provisioning norms and prudent compensation policies.
    • Current Coverage: RBI has classified 17 NBFCs in the Upper Layer, including Bajaj Finance, Tata Capital and Shriram Finance.

    [2026] Consider the following statements about the Non-Banking Financial Companies (NBFCs) in India:
    1. NBFCs cannot accept demand deposits.
    2. All the NBFCs operating in India have to be registered with the RBI.
    3. NBFCs form part of the payment and settlement system and can issue cheque drawn on itself.
    4. Deposit insurance facility of Deposit Insurance and Credit Guarantee Corporation (DICGC) is not available to the depositors of deposit taking NBFCs.
    Which of the statements given above is/are correct?
    (a) 1 and 4

    (b) 1, 2 and 3

    (c) 4 only

    (d) 2, 3 and 4

  • RBI to resume licensing of Urban Cooperative Banks after two decades

    Why in the News

    The Reserve Bank of India (RBI) has announced that it will resume issuing licences for new Urban Cooperative Banks (UCBs) on an on tap basis, ending a pause of more than two decades. The move follows regulatory reforms aimed at strengthening governance and supervision in the cooperative banking sector.

    What is an Urban Cooperative Bank (UCB)?

    • Cooperative bank: A UCB is a cooperative society that provides banking services primarily in urban and semi urban areas.
    • Ownership: Owned and managed by its members on the principle of one member, one vote.
    • Dual regulation:
      • RBI: Banking operations, licensing, prudential norms and supervision.
      • State/Central Registrar of Cooperative Societies: Management, elections and administration.
    • Size: India has around 1,457 Urban Cooperative Banks.

    What is RBI changing?

    • On tap licensing: New UCB licences will be granted throughout the year, instead of one time licensing windows.
    • Review of concentration norms: RBI will revisit concentration risk norms for rural cooperative banks.
    • Interest rate framework: Plans to rationalise the interest rate framework across regulated entities for greater consistency.

    Why was licensing suspended?

    • Governance failures: Several UCBs suffered from weak governance, poor risk management and financial irregularities.
    • Bank failures: High profile failures raised concerns about depositor protection and financial stability.
    • Regulatory limitations: The dual control structure often hampered effective supervision.

    Why has RBI resumed licensing?

    • Stronger regulation: Amendments to the Banking Regulation Act, 1949 have enhanced RBI’s supervisory powers over cooperative banks.
    • Improved governance: Regulatory reforms have strengthened oversight and accountability.
    • Financial inclusion: New UCBs can expand access to affordable banking and credit in underserved urban and semi urban areas.

    Prelims Pointers

    • Urban Cooperative Banks (UCBs) operate mainly in urban and semi urban areas.
    • They are subject to dual regulation by the RBI and the Registrar of Cooperative Societies.
    • The Banking Regulation (Amendment) Act, 2020 strengthened RBI’s supervisory powers over cooperative banks.
    • On tap licensing allows eligible entities to apply for banking licences at any time instead of waiting for a specific licensing window.

    “[2021] With reference to ‘Urban Cooperative banks’ in India, consider the following statements:
    1.They are supervised and regulated by local boards set up by the State Governments.
    2.They can issue equity shares and preference shares.
    3.They were brought under the purview of the Banking Regulation Act, 1949 through an Amendment in 1966.
    Which of the statements given above is/are correct?
    (a) 1 only
    (b) 2 and 3 only
    (c) 1 and 3 only
    (d) 1, 2, and 3

  • Consider the following statements

    Consider the following statements:
    1. In terms of short-term credit delivery to the agriculture sector, District Central Cooperative Banks (DCCBs) deliver more credit in comparison to Scheduled Commercial Banks and Regional Rural Banks.
    2. One of the most important functions of DCCBs is to provide funds to the Primary Agricultural Credit Societies.
    Which of the statements given above is/are correct?

  • With reference to the Non-banking Financial Companies (NBFCs) in India, consider the following statements

    With reference to the Non-banking Financial Companies (NBFCs) in India, consider the following statements :
    1. They cannot engage in the acquisition of securities issued by the government.
    2. They cannot accept demand deposits like Savings Account.
    Which of the statements given above is/are correct ?

  • The basic aim of Lead Bank Scheme is that

    The basic aim of Lead Bank Scheme is that

  • Which of the following grants/grant direct credit assistance to rural households

    Which of the following grants/grant direct credit assistance to rural households?
    (1). Regional Rural Banks
    (2). National Bank for Agriculture and Rural Development
    (3). Land Development Banks
    Select the correct answer using the codes given below.

  • The establishment of ‘Payment Banks’ is being allowed in India to promote financial inclusion.

    The establishment of ‘Payment Banks’ is being allowed in India to promote financial inclusion.
    Which of the following statements is/are correct in this context?

    1. Mobile telephone companies and supermarket chains that are owned and controlled by
    residents are eligible to be promoters of Payment Banks.
    2. Payment Banks can issue both credit cards and debit cards.
    3. Payment Banks cannot undertake lending activities.
    Select the correct answer using the code given below.

  • What is the purpose of setting up of Small Finance Banks (SFBs) in India

    What is the purpose of setting up of Small Finance Banks (SFBs) in India?
    1. To supply credit to small business units
    2. To supply credit to small and marginal farmers
    3. To encourage young entrepreneurs to set up business particularly in rural areas.
    Select the correct answer using the code given below:

  • With reference to ‘Urban Cooperative banks’ in India, consider the following statements

    With reference to ‘Urban Cooperative banks’ in India, consider the following statements:

    1.They are supervised and regulated by local boards set up by the State Governments.
    2.They can issue equity shares and preference shares.
    3.They were brought under the purview of the Banking Regulation Act, 1949 through an Amendment in 1966.
    Which of the statements given above is/are correct?

  • Consider the following statements about the Non-Banking Financial Companies (NBFCs) in

    Consider the following statements about the Non-Banking Financial Companies (NBFCs) in
    India:
    1. NBFCs cannot accept demand deposits.
    2. All the NBFCs operating in India have to be registered with the RBI.
    3. NBFCs form part of the payment and settlement system and can issue cheque drawn on
    itself.
    4. Deposit insurance facility of Deposit Insurance and Credit Guarantee Corporation
    (DICGC) is not available to the depositors of deposit taking NBFCs.
    Which of the statements given above is/are correct?