RBI takes practical stance on family trusts and investment cos
Mumbai, Nov 27, 2025
Synopsis
In a forward-thinking initiative, the Reserve Bank of India is simplifying wealth management for business families. By allowing the transfer of ownership of investment companies to private family trusts, they're paving the way for smoother succession planning and minimizing potential disputes.
A receptive regulator is making it easier for business families to house their wealth and assets in private trusts.
The Reserve Bank of India (RBI) is allowing, on a case by case basis, transfer of ownership of investment companies which hold shares of family group companies and other portfolio investments, to family trusts. With this, the shareholdings and control of these entities shift from senior family members to family trusts.
The regulator, however, is insisting that the trustees should be family members instead of professionals, two persons familiar with the issue told ET.
Entities holding listed and unlisted stocks on behalf of the family are typically non-banking finance companies (NBFCs) or core investment companies registered with RBI. Any change in control of 26% or above in such companies needs regulatory approval.
For a long time, RBI has been hesitant in allowing such transfers due to the opaque nature of trusts and concerns over who would eventually end up controlling the companies. However, it has veered around to a view that if the patriarch and other family members are trustees (with the members of the GenNext as beneficiaries), such fears are considerably mitigated.
"With the rising number of applications to RBI for transferring ownership of NBFCs/CICs into private family trusts, the regulator has increasingly focused on the governance architecture of these trusts - particularly, the alignment between trustees and the ultimate beneficiaries. From a regulatory comfort standpoint, applications tend to be viewed more favourably where the trustees are immediate family members of the beneficiaries, as this preserves the continuity of control within the promoter family," said Vishal Gada, founder & CEO of Aurtus, a boutique firm offering tax, transaction and regulatory services.
FOCUS ON TRUSTS
Over the last decade, particularly since COVID, there has been a marked shift among Indian business families toward reorganising their asset-holding structures through private family trusts - primarily to streamline succession planning, minimise family feuds, and protect themselves from any inheritance tax regime in future. Faced with this changing reality and sensing the growing significance of family trusts, the regulator, while approving shareholding transfers, has been keen to put in the condition that could prevent a surreptitious change of control or backdoor entry of outsiders or even foreigners.
At least three such applications have been cleared by RBI in the past two months, sources said.
Sharing a similar view, Moin Ladha, partner at the law firm Khaitan & Co, said: "RBI has recently taken a more streamlined and practical approach to NBFC approval requests. It is now open to considering transfers to trusts for succession planning - something already recognised by Sebi under defined conditions."
Under the circumstances, RBI may ask for an undertaking from applicants that regulatory consent would be required before any outsider is brought in as trustee in a family trust.
In cases where the NBFC has a sizable equity stake in a listed company, a trust taking over the NBCF's control can seek Sebi's exemption from making an open offer. Sebi's position in such a situation is well-defined: it restricts the role of trustees to specified persons and prohibits third-party trustees from exercising control over regulated entities. RBI, however, is yet to have any comparable regulations governing the permissibility and qualifications of trustees in transactions involving NBFCs and registered CICs. (CICs are investment companies with public debt and net worth of ₹100 crore or more.)
"But, given the trend and RBI's evolving engagement with such structures, it would not be surprising if the regulator eventually introduces a more formalised set of norms - possibly akin to Sebi's approach - requiring that trustees be relatives of the beneficiaries to ensure that effective control of NBFCs and registered CICs remains within the family itself," said Gada.
FOREIGN INVESTMENT CO
RBI, according to Ladha, is also reviewing requests for overseas investments, provided they meet the prescribed guidelines.
A domestic regulated financial services entity, having a three-year profitability track record, needs RBI's clearance for setting up an overseas investment company which would also have to be regulated by an overseas authority. RBI, however, has been rather cautious in approving such offshore investments; often such permissions depend on the reputation of the business group and the quantum of the offshore investment : here, a clearance may be more likely if only a small slice of the group's net worth is invested in the foreign entity.
A non-financial services local entity - an operating company - is allowed to set up a financial services company abroad without taking a prior RBI approval under the Overseas Investment regulations of August 2022. However, most banks processing such cross-border fund transfer proposals are unwilling to allow the remittance - probably having sensed the regulatory position in the course of conversations with RBI officials.
Nonetheless, the evolving regulatory stance indicates that RBI is open to giving a green signal to either local transfers of holdings to trusts or formation of family investment companies abroad as long as it has a comfort and visibility on control, background of the applicants, and the size of outflow. An RBI spokesman did not comment on the subject.
[The Economic Times]
