RBI Clarifies NBFC Principal Business and CIC Rules After Tata Sons CoR Rejection

Overview:  The Reserve Bank of India (RBI) has clarified key rules governing NBFC principal business and Core Investment Company (CIC) classification shortly after rejecting Tata Sons’ request to surrender its Certificate of Registration (CoR). The clarification explains when financial activity becomes a company’s principal business and when a CIC is required to obtain RBI registration. The Tata Sons decision also keeps the company within the regulatory framework applicable to Non-Banking Financial Company – Upper Layer (NBFC-UL) entities.

The Reserve Bank of India’s latest clarification on key rules governing NBFC principal business and Core Investment Company (CIC) classification is particularly relevant for companies with financial activities or complex group-holding structures.

The issue has gained fresh attention after the RBI rejected Tata Sons’ application to surrender its Certificate of Registration and advised the company to comply with the requirements applicable to NBFC-Upper Layer entities. 

At the same time, the RBI’s Frequently Asked Questions provide useful clarity on the tests used to determine whether financial activity constitutes a company’s principal business and when a company falls within the CIC framework.

For businesses with substantial investments, lending activity or group-company holdings, these distinctions can determine whether RBI registration and ongoing NBFC compliance requirements apply.

RBI Clarifies the 50-50 Principal Business Test

Under the RBI framework, financial activity is treated as a company’s principal business when both of the following conditions are satisfied:

• Financial assets are more than 50% of total assets, after the applicable adjustments.
• Income from financial assets is more than 50% of gross income.

Both tests must be satisfied. A company that does not meet both conditions is not treated as an NBFC merely because it carries out some financial activity.

This distinction is particularly relevant for companies whose main business is manufacturing, trading, services, agriculture or real estate but which also undertake some financial or investment activities.

In simple terms, financial activity has to be the principal business of the company, rather than merely one part of its operations.

What Makes a Company a CIC?

A Core Investment Company (CIC) is a specialised category of NBFC that primarily holds investments in group companies.

Under the RBI framework, a CIC generally has an asset size of ₹100 crore or more and must satisfy prescribed conditions relating to its investments and activities. 

These include:

• At least 90% of its net assets must be invested in specified securities of group companies.
• At least 60% of its net assets must be invested in equity shares of group companies and qualifying Infrastructure Investment Trust (InvIT) units held as sponsor.
• It must not trade in its group-company investments except through permitted block sales for dilution or disinvestment.
• It must not undertake other financial activities except those specifically permitted under the RBI framework.

The registration requirement also depends on whether the CIC accesses public funds.

A CIC with assets of ₹100 crore or more that does not access public funds may fall within the category of an unregistered CIC. Where a CIC accesses public funds, RBI registration requirements apply under the prescribed framework.

Where multiple CICs exist within the same group, the RBI FAQs also provide specific guidance on which entities are required to obtain a CoR, depending on the group’s structure and access to public funds.

Tata Sons CoR Rejection: Why It Matters

On September 11, 2026, the RBI rejected Tata Sons’ application of March  2024, seeking voluntary surrender of its Certificate of Registration.

The RBI advised Tata Sons to take the necessary steps to comply with the guidelines and instructions applicable to NBFC-Upper Layer (NBFC-UL) entities.

Tata Sons had total assets of approximately ₹2.01 lakh crore as of March 31, 2026. The company had already been classified in the NBFC-Upper Layer, making the RBI’s decision significant for its continuing regulatory obligations.

The decision has also brought the company’s public-listing requirement back into focus.

Five-Year Regulatory Continuity for NBFC-UL

The RBI’s scale-based regulatory framework provides that once an NBFC is classified as an NBFC-Upper Layer, it remains subject to the enhanced regulatory framework for at least five years from the date of classification, even if it does not meet the relevant classification parameters in subsequent years.

The framework does, however, provide for an earlier move out of the enhanced framework where the change results from a voluntary strategic move to readjust operations under a Board-approved policy, subject to the conditions prescribed by RBI.

This means that simply reducing assets or changing the company’s financial profile does not automatically result in an immediate exit from the enhanced NBFC-UL framework.

For Tata Sons, the RBI’s rejection of its CoR surrender request therefore keeps the company’s NBFC-UL regulatory requirements and associated listing obligations in focus.

What Should Businesses Review?

Companies with financial activities or group-holding structures should periodically review:

• Financial assets and income against the 50-50 principal business test.
• Whether the company’s structure meets the CIC criteria.
• Group-company investments and exposures.
• Whether the company accesses or holds public funds.
• Whether an RBI Certificate of Registration is required.
• The regulatory implications of restructuring an NBFC or seeking CIC classification.

These checks become particularly important where a company has substantial investments in group entities but also carries out lending, financing or other financial activities.

FAQs:

SetIndiaBiz Support

The RBI’s clarification on NBFC principal business, CIC classification and regulatory requirements puts corporate structures and financial activities back on the compliance radar for businesses and group companies. SetIndiaBiz experts help businesses review corporate structures, financial activities, NBFC registration requirements, CIC classification and ongoing regulatory compliance so that applicable RBI requirements can be identified and addressed systematically.

For businesses, the practical question is not merely whether financial activity crosses a prescribed threshold. It is also whether the company’s asset mix, income profile, group investments and access to public funds bring it within any NBFC or CIC-related requirements. Businesses should therefore review their structure and applicable RBI obligations and seek professional support through SetIndiaBiz services where required.

The RBI’s latest clarification brings renewed attention to the distinction between ordinary corporate investment activity and a financial business that falls within the NBFC framework. 

For companies with significant group investments or financial operations, the 50-50 principal business test, CIC conditions and public-funds position can have direct regulatory consequences.