While Tata Sons’ initial public offer (IPO) has been in focus for the past week, but there are five other companies who also have to launch their offers in slightly-over one year. These include companies like Bajaj Housing Finance and five other shadow banks including  Piramal Capital and Housing Finance, Tata Capital Financial Services, HDB Financial Services, and Aditya Birla Finance that must list in a year on account of being featured in Reserve Bank of India’s list of ‘upper-layer’ non-banking financial companies.

“Upper Layer NBFCs (NBFC-UL) are subject to stricter regulations due to their size and activity. One of the key requirements for NBFC-UL is mandatory listing on a stock exchange within 3 years of being classified as such,” says Rohan Rai, associate partner, RR Legal Partners.

In October 2021, RBI issued scale-based regulations, which classified NBFCs on the basis of size, activity, and perceived weakness.  According to these norms, NBFCs are classified as base layer, middle layer, upper layer, and top layer.

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The upper layer comprises those NBFCs which are specifically identified by the central bank as warranting enhanced regulatory requirement.

“These NBFCs designated as upper layer NBFCs are subjected to a rigorous, bank-like regulatory framework including mandatory listing within three years from the date of such designation,” Vipul Jai, Partner, PSL Advocates and Solicitors.

In September 2022, RBI issued its list of 16 upper-layer NBFCs. This list was subsequently updated in 2023 wherein, Shanghvi Finance is not included.

“If these NBFCs are not listed at the time of categorisation as NBFC UL, they have to take steps to be listed within 3 (three) years of being identified as NBFC UL,” says Amit Kumar Nag, Partner, AQUILAW. This means that these six NBFCs must list on exchanged by September 2025.

In the last couple of days, shares of Tata Group companies have soared on buzz that the conglomerate is planning to launch an initial public offering of its holding company, Tata Sons. But, there is no official confirmation from the conglomerate as yet.

“Disclosure requirements shall be put in place on the same lines as applicable to a listed company even before the actual listing, as per Board approved policy of the NBFC,” says Vatsal Gaur, Partner, King Stubb & Kasiva.

Gaur added that unlisted upper-layer NBFCs must draw up a board approved road map for compliance with disclosure requirements of listed companies.

Nevertheless, some experts feel that NBFCs averse to mandatory listing may look to restructure their current operations, reposition into a different layer under the scale-based regulations. But, the final decision in this matter will rest with the RBI.

“Unfortunately, there is currently no alternative to listing for NBFC-UL entities. The regulations clearly mandate listing to ensure greater transparency and public accountability for these larger NBFCs,” says Rai.