Under the RBI's “principal business” or 50-50 test, any company is treated as a non-banking financial company (“NBFC”) if more than 50% of its total assets are financial assets and more than 50% of its income comes from those assets. A typical investment holding company may cross both limits, particularly in the event of exits, as its balance sheet is dominated by shares of group companies and its income is mostly dividends, interest, or capital gains.
Once mandated as an NBFC, the holding company has to obtain a ‘Certificate of Registration’, and comply with the full set of requirements covering governance, capital adequacy, asset classification, disclosures, and periodic reporting to the RBI as applicable to NBFCs.
