Groups with financial services arms are increasingly re-engineering their structures to keep certain entities outside the Reserve Bank of India's regulatory perimeter, people familiar with the developments said, underscoring how firms are responding to a more exacting supervisory environment. The manoeuvre is not about exiting finance altogether, but about changing the composition of income and assets so that holding companies and non-banking finance companies do not trigger the thresholds that would bring them under stricter registration, reporting and governance requirements.
Regulatory Thresholds
At the centre of the shift is the RBI's classification framework for non-banking financial companies and core investment companies, which determines whether an entity is treated as a regulated financial institution. Sources said some groups are deliberately adjusting the mix of assets held by their holding companies, while NBFCs are seeking to raise the share of income that is not derived from financial activities. The objective is to remain outside the definitions that would subject them to closer oversight, even as they continue to support wider group financing and investment activity.
The strategy reflects a broader tension in India's financial system. On one hand, the RBI has tightened its approach to shadow banking and group-level exposures after years of concern about leverage, interconnectedness and opaque intra-group funding. On the other, large business groups have long used holding companies and investment vehicles to channel capital across operating businesses. As the regulator sharpens scrutiny, those structures are being recalibrated to preserve flexibility without crossing formal regulatory lines.
Income And Asset Shifts
According to the sources, NBFCs are boosting non-financial income streams in order to alter the character of their earnings profile. That may include income from advisory services, fees, or other activities that do not fall squarely within lending or investment operations. The aim is to dilute the proportion of income tied to financial assets, which can be relevant in determining whether an entity is classified as an NBFC under RBI norms.
Core investment companies, meanwhile, are changing the composition of their assets. CICs are typically used by conglomerates to hold shares in group companies, but if their balance sheets become too concentrated in financial assets, they can attract regulatory obligations. By modifying the asset mix, groups are attempting to keep these entities from being treated as regulated financial intermediaries. The result is a careful balancing act: preserve the holding structure, but avoid the regulatory consequences that come with it.
Industry executives and advisers say the trend is a sign that firms are becoming more sensitive to the cost of compliance. Registration, capital adequacy, governance standards and disclosure requirements can materially alter how a group finance arm operates. For some promoters, remaining outside the formal NBFC or CIC framework can mean lower compliance costs and greater operational discretion. But it can also raise questions about transparency, risk transfer and the true economic purpose of the entity.
Compliance Pressure Builds
The RBI has in recent years moved toward a more consolidated view of financial risk, paying closer attention not only to standalone entities but also to group structures and related-party exposures. That has made it harder for conglomerates to rely on legacy structures that may once have sat in a grey zone. Sources said the current restructuring wave is, in part, a pre-emptive response to the possibility of tighter enforcement or further clarification of the rules.
The development also highlights a recurring feature of India's financial regulation: firms often adapt quickly to the letter of the law, even as regulators seek to capture the economic substance of transactions and structures. If an entity can shift enough of its income or assets to avoid a threshold, it may remain outside a particular rule set, at least for now. But such arrangements can be vulnerable if the regulator revises the test or examines the underlying purpose of the structure.
For the RBI, the challenge is to ensure that entities performing financial functions do not escape oversight simply by changing labels or reclassifying income. For corporate groups, the incentive is to retain the benefits of a finance platform without accepting the full burden of regulation. The current wave of balance-sheet rejigging suggests that the contest between regulatory perimeter and corporate structuring is entering a new phase, with implications for transparency, risk management and the future shape of India's shadow banking landscape.