Groups that own non-banking financial companies and holding companies are reshaping their balance sheets in an effort to remain outside the Reserve Bank of India's regulatory definitions, according to people familiar with the matter. The restructuring is aimed at avoiding registration, reporting and compliance obligations that would apply if the entities were classified as regulated NBFCs or core investment companies, the sources said.
The trend reflects a broader response to the RBI's increasingly close watch on shadow-banking structures. Rather than expanding lending or financial exposure in ways that would bring them within the central bank's net, some groups are adjusting the composition of assets and income on paper and in practice. NBFCs are increasing non-financial income, while core investment companies, or CICs, are altering their asset mix to ensure they do not breach thresholds that could trigger regulatory action.
Balance Sheet Recalibration
At the centre of the strategy is the careful management of what counts as financial activity. For NBFCs, the RBI's regulatory framework hinges on the share of financial assets and financial income. By lifting non-financial income, companies can dilute the proportion of revenue derived from financial operations, potentially keeping them below the level that would classify them as NBFCs under the applicable rules. In parallel, some holding companies are modifying the composition of investments and other assets to avoid being treated as CICs that must register with the RBI.
The sources said the changes are not necessarily cosmetic, but they are designed with regulatory thresholds in mind. That has raised concern among observers that corporate groups are using accounting and structural flexibility to sidestep oversight rather than to simplify operations. The RBI has in recent years tightened supervision of the sector, especially after episodes of stress in parts of the shadow-banking system exposed risks to lenders, investors and depositors.
The issue is particularly sensitive because NBFCs play a significant role in credit intermediation in India, often serving borrowers and sectors that traditional banks do not reach as easily. CICs, meanwhile, sit at the top of conglomerate structures and can be used to hold stakes in operating businesses and financial subsidiaries. When these entities are kept outside the regulatory perimeter, the central bank has less visibility into leverage, related-party exposures and intra-group funding flows.
Regulatory Perimeter Pressure
The RBI's definitions are intended to capture entities whose principal business is financial activity or whose asset profile makes them functionally similar to financial intermediaries. But the current restructuring wave suggests that some groups are testing the boundaries of those definitions. By changing the mix of income or assets, they can argue that the entity no longer meets the threshold for registration, even if the underlying group remains heavily involved in finance.
That creates a policy challenge. Regulators are not only concerned with formal classification, but also with the economic substance of the business. If a company is technically outside the definition but still performs financial functions within a group, the risk of regulatory arbitrage increases. Sources said this is precisely the kind of behaviour the RBI has been monitoring more closely as it seeks to prevent entities from escaping oversight through technical adjustments.
The development also comes at a time when the RBI has been pressing for stronger governance, better disclosure and more conservative risk management across the financial system. Any widespread attempt to re-engineer balance sheets to avoid compliance could invite closer examination of group structures, income recognition practices and asset classification methods.
Shadow Banking Scrutiny
For the market, the immediate implication is that regulatory boundaries may become a more active area of contest. Companies seeking to remain outside the RBI's ambit may gain short-term relief from compliance costs, but they also risk future scrutiny if the central bank concludes that the changes are intended primarily to defeat regulation. That could lead to supervisory intervention, reclassification or demands for additional disclosures.
The broader backdrop is India's evolving financial architecture, where conglomerates often combine lending, investment, insurance and operating businesses under one umbrella. In such structures, the line between a financial and non-financial entity can be blurred, especially when income streams are diversified and asset holdings are actively managed. The current restructuring effort shows that those lines are now being redrawn with regulatory thresholds in mind.
For the RBI, the challenge will be to ensure that legal form does not override economic reality. For corporate groups, the incentive is clear: staying outside the regulatory perimeter can preserve flexibility and reduce compliance burdens. But as the central bank sharpens its focus on shadow-banking risks, the room for such manoeuvres may narrow further.