RBI Scrutiny Prompts Promoter Groups To Reassess NBFC, Holding Company Structures

New Delhi, Sep 29 (KNN) Rising scrutiny by the Reserve Bank of India (RBI) is prompting some promoter groups to reassess the structure of their holding companies and non-banking financial companies (NBFCs), with compliance requirements and regulatory restrictions emerging as key considerations.

RBI has issued notices to some entities seeking clarification on their registration status and compliance with NBFC norms. Some groups are subsequently reviewing their balance sheets and business structures to determine whether they fall within the regulator’s definitions.

NBFC Classification Hinges On 50 percent Test

An entity is generally classified as an NBFC if its financial assets account for more than 50 per cent of total assets, excluding intangible assets, and income from financial assets exceeds 50 per cent of gross income. Both conditions under the principal business test need to be met.

Core Investment Companies (CICs), meanwhile, are subject to separate criteria. A CIC must hold at least 90 per cent of its net assets in group-company equity, debt or other specified instruments, with at least 60 per cent invested in group-company equity, reported Economic Times.

Groups Review Asset And Income Mix

Some NBFCs are reviewing their income mix, including non-financial activities, to assess whether they still meet the principal business test, while CICs are reassessing their asset mix against regulatory thresholds.

Zeel Jambuwala of Aurtus said some promoter families are restructuring entities to legitimately remain outside NBFC and CIC regulations, mainly to reduce compliance and retain flexibility.

Regulated entities face additional governance and risk-management requirements, including asset-liability management and risk oversight. 

Entities with assets above Rs 5,000 crore may also need to appoint a chief risk officer, while registered CICs face additional risk-management and reporting requirements.

Alternative Structures Gain Attention

CICs with assets of at least Rs 100 crore and public funds, and NBFCs with assets of Rs 1,000 crore or more, are reviewing restructuring options, Jambuwala said. 

These include replacing public funds with equity or compulsorily convertible instruments, or merging holding companies with operating businesses.

Some groups also hold investments through LLPs and private trusts, which may fall outside the NBFC definition depending on their structure and activities. The RBI exempts certain entities below the Rs 1,000 crore threshold from registration if they have no customer interface or public funds.

Bhavesh Vora of Basilstone Consulting said increased auditor scrutiny and RBI notices have raised awareness of registration requirements. 

Companies may also seek to avoid registration-related delays, during which new investments can be restricted. The developments highlight the growing role of regulatory classification in corporate structuring and compliance.

(KNN Bureau)