Reserve Bank of India (RBI) has recently taken a progressive and pragmatic stance by increasingly permitting, on a case-by-case basis, the transfer of ownership of investment companies (including NBFCs and Core Investment Companies) to private family trusts.
Why is RBI approval required?
Under RBI’s regulations and the Master Directions governing Non-Banking Finance Companies, any change in shareholding of 26% or more triggers the requirement to obtain prior RBI approval. The only exception is where the shareholding changes beyond 26% results from a buyback of shares or capital reduction that has received the sanction of a competent court; in such cases, prior approval is not required. Moreover, the RBI has been reluctant to allow such transfers because trust structures lack transparency and raise concerns over ultimate control.
RBI’s emerging ease
RBI has begun permitting the transfer of investment companies holding group shares and portfolio investments into private family trusts. This shift enables business families to consolidate ownership, centralize decision-making, and streamline succession planning. To ensure regulatory comfort around control, RBI prefers structures where trustees are immediate family members of the beneficiaries. This provides transparency, continuity of control, and minimizes concerns around non-family influence or opaque governance.
Recent approvals have also included conditions requiring applicants to obtain prior regulatory consent before appointing any outsider as trustee, reinforcing RBI’s emphasis on maintaining clear and traceable lines of control.
RBI’s evolving approach reflects a greater openness to facilitating orderly succession transitions through private family trusts. This development represents a significant and practical step towards recognizing the needs of modern Indian business families while maintaining strong regulatory safeguards.
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