Industry Odisha Bureau, Sep 28: Some groups are reshaping the assets and income of NBFCs and holding entities. Rising RBI scrutiny has sharpened focus on regulatory definitions. Compliance burdens and limited flexibility are driving the rethink.
Regulatory definitions are increasingly shaping how Indian promoter groups structure their businesses. Several groups are reassessing their holding companies and non-banking finance companies (NBFCs). The trigger is sharper attention from the Reserve Bank of India (RBI).
Sources said the regulator has sent notices to some companies. These ask why entities have not registered or are not following registration rules. In response, some groups are rejigging balance sheets to sit outside RBI definitions.
The 50-50 test
NBFC status hinges on the principal business test. It is applied to the last audited numbers. Financial assets must exceed 50% of total assets, net of intangible assets. Income from financial assets must also exceed 50% of gross income. Both conditions matter for classification.
Different thresholds for holding entities
Core investment companies (CICs) are holding entities judged on separate tests. A CIC holds at least 90% of net assets in group-company equity and debt. At least 60% must be in the equity of group companies. Not every holding company automatically meets these criteria.
Balance sheets move with the rules
Some NBFCs are reported to be changing their income composition. One illustrative example involves commodity trading. An NBFC might buy cotton for ₹100 crore and sell it for ₹101 crore. That adds ₹101 crore of non-financial turnover. The share of financial income could then fall below 50%.
CICs, meanwhile, are reported to be altering their asset mix. A property investment could dilute group exposure below the 90% mark. Outcomes still depend on each entity’s actual circumstances.
Compliance drives choices
Zeel Jambuwala of Aurtus sees a clear trend among promoter families. Many are restructuring to legitimately fall outside NBFC and CIC regulations, Jambuwala said. Avoiding heavy compliance is usually the rationale.
Flexibility is another concern. Succession events or family settlements changing material shareholding can need prior RBI approval. An RBI-regulated entity also cannot invest in GIFT City AIFs through the automatic route.
Registration can bring significant governance obligations, depending on the entity. These may include board-approved asset-liability management policies and an oversight committee. Entities with assets above ₹5,000 crore may need a chief risk officer. Registered CICs need a risk management committee and quarterly fund-use statements.
Routes under consideration
CICs with at least ₹100 crore in assets and public funds are exploring restructuring. So are NBFCs with assets of ₹1,000 crore or more. One approach replaces public funds with equity or compulsorily convertible instruments. Another merges a holding company into an operating business.
Many groups also hold investments through LLPs or private trusts, Jambuwala said. These do not fall under the NBFC definition, according to Jambuwala.
A narrower perimeter
The RBI recently exempted certain entities with assets below ₹1,000 crore. The relief applies only to those without customer interface or public funds. Jambuwala called the exemption a positive development.
Scrutiny from several directions
Bhavesh Vora of Basilstone Consulting points to several drivers. Auditors must now report whether an entity falls within the NBFC definition. Awareness of RBI norms and registration-related notices has also grown, Vora said.
Some firms also want to avoid regulatory delays. Vora said applicants cannot make new investments while registration is being processed.
Classification becomes strategy
The trend shows how closely corporate structures now track regulatory thresholds. Groups want flexibility and lighter compliance. Rising RBI scrutiny makes accurate classification more important than ever.
