Sources said a growing number of corporate groups are actively rejigging the financial profiles of their non-banking financial companies and holding companies to keep them outside the Reserve Bank of India's regulatory perimeter. The manoeuvre, they said, is designed to avoid the registration, capital, governance and reporting obligations that come with being classified as a regulated NBFC or a core investment company.
The trend underscores a familiar tension in India's financial system: as regulation tightens, some groups seek to preserve flexibility by altering the composition of income and assets rather than expanding their formal financial operations. In practice, that means NBFCs are increasing the share of non-financial income on their books, while core investment companies, or CICs, are changing the mix of assets they hold so they do not trigger thresholds that would bring them under stricter RBI oversight.
Regulatory Thresholds
At the centre of the issue is the RBI's classification framework, which determines whether a company must register as an NBFC or comply with CIC-specific rules. Once a company crosses the relevant asset or income thresholds, it can be pulled into a more demanding regulatory regime that includes prudential norms, disclosure standards and periodic supervision. For business groups that use holding companies to house strategic investments and financing arms, that can materially alter how capital is deployed and how freely assets can be moved across the group.
Sources said the restructuring is not necessarily about exiting financial activity altogether. Instead, it is about managing the balance sheet so that financial income does not dominate and financial assets do not become large enough to trip the regulatory tests. In some cases, groups are said to be increasing income from advisory, fee-based or other non-lending activities. In others, they are adjusting the composition of investments, inter-corporate exposures and other holdings to remain below the thresholds that would require registration or enhanced compliance.
The development is significant because it highlights how regulatory arbitrage can emerge even in a system that has steadily expanded oversight of shadow banking. NBFCs have become an important source of credit in India, particularly for retail borrowers, small businesses and segments underserved by traditional banks. That importance has prompted the RBI to sharpen supervision over the sector, especially after episodes of stress in parts of the non-bank financial system in recent years.
Income, Asset Reclassification
For NBFCs, the push toward non-financial income appears to be a defensive strategy as much as a structural one. By broadening revenue sources away from lending and finance-linked activities, a company may be able to argue that it is not primarily engaged in financial business. That can reduce the likelihood of being treated as an NBFC under RBI rules, depending on the exact composition of income and assets.
For CICs, the logic is similar but the mechanics differ. These entities are typically used by large business houses to hold stakes in operating companies and manage group ownership structures. If their asset profile becomes too concentrated in financial investments or if they meet prescribed thresholds, they may face tighter regulation. Sources said some groups are therefore rebalancing portfolios to keep the holding company's assets aligned with the definition of an investment vehicle rather than a financial intermediary.
The RBI has in the past signalled concern over structures that blur the line between operating companies, investment vehicles and financial intermediaries. The central bank's approach has been to ensure that entities performing financial functions do not escape oversight merely because of their legal form or internal accounting choices. The latest restructuring efforts suggest that companies are testing the boundaries of those definitions, even as the regulator continues to refine its supervisory lens.
Scrutiny Without Expansion
The broader implication is that India's financial regulatory architecture may face an increasingly sophisticated form of balance-sheet engineering. Rather than expanding into new products or markets, some groups appear to be using accounting, income recognition and asset allocation decisions to influence how they are classified. That can complicate supervision, especially when group structures are layered and financial activity is dispersed across multiple entities.
For policymakers, the challenge is to distinguish between legitimate corporate restructuring and deliberate attempts to evade oversight. For the RBI, the issue is not only whether an entity meets a technical definition today, but whether the spirit of the rules is being undermined by strategic reclassification. The matter is likely to remain sensitive as India's financial sector continues to evolve and as conglomerates seek greater flexibility in managing capital, risk and regulatory exposure.
The sources did not indicate any immediate enforcement action, but the reported shifts suggest that the contest between regulatory reach and corporate structuring is intensifying. As long as the incentives to stay outside the RBI's formal net remain strong, holding companies and NBFCs are likely to keep searching for ways to redraw the lines.