RBI Eases Rules for Family Trusts, Allowing Ownership Transfers of Investment Companies for Succession Planning
Central Bank Aligns with SEBI, Permits Family-Controlled Trusts to Hold NBFCs and CICs
Evolving Stance Driven by Succession Needs, Governance Concerns, and Anticipation of Inheritance Tax
By Our Legal Correspondent
New Delhi: November 29, 2025:
In a forward-looking move, the Reserve Bank of India (RBI) has begun to take a more practical stance on family trusts and investment companies, easing rules to help business families manage succession planning and wealth transfer. The regulator is now permitting, on a case-by-case basis, the transfer of ownership of Non-Banking Finance Companies (NBFCs) and Core Investment Companies (CICs) into private family trusts, provided trustees are family members.
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This marks a significant shift from RBI’s earlier cautious approach, where concerns about opacity and hidden changes in control made such transfers difficult.
Why RBI’s Stand Is Evolving
Several factors explain why RBI is changing its position:
- Rising Applications from Business Families
- Over the past decade, especially post-COVID, Indian business families have increasingly reorganized their holdings through private family trusts.
- Applications to RBI for transferring NBFCs and CICs into trusts have surged, prompting the regulator to respond with a more flexible framework.
- Succession Planning and Family Governance
- Family trusts help streamline succession, minimize disputes, and ensure continuity of control.
- By allowing transfers, RBI is acknowledging the importance of orderly wealth management in promoter-driven businesses.
- Anticipation of Inheritance Tax
- With discussions around a possible inheritance tax regime in India, families are proactively restructuring their holdings.
- Trusts provide a shield against potential tax burdens, making them attractive vehicles for succession.
- Alignment with SEBI’s Approach
- Market regulator SEBI already recognizes transfers to trusts under defined conditions.
- RBI’s evolving stance aligns with SEBI, ensuring consistency across regulatory frameworks.
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Safeguards and Conditions
RBI’s comfort with family trusts comes with safeguards:
- Trustees must be family members: Professional or external trustees are generally not permitted.
- Regulatory approval required: Any change in control of 26% or more in NBFCs or CICs needs RBI’s clearance.
- No hidden control shifts: RBI insists on undertakings that outsiders cannot be added as trustees without prior approval.
- Case-by-case approvals: At least three applications have been cleared in the past two months, showing RBI’s willingness to adapt.
Implications for Business Families
The evolving stance has major implications:
- Smoother succession: Families can transfer control of investment companies to trusts without fear of regulatory hurdles.
- Reduced disputes: Trust structures minimize family feuds over ownership.
- Continuity of control: Promoter families retain effective control, ensuring stability in group companies.
- Tax preparedness: Trusts provide a buffer against potential inheritance tax regimes.
Broader Context: Overseas Investments
RBI is also reviewing requests for overseas investment companies:
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- Domestic regulated financial services entities with a three-year profitability track record can seek RBI clearance.
- Offshore investment approvals depend on the reputation of the business group and the size of the outflow.
- Non-financial operating companies can set up financial services firms abroad without prior RBI approval under the Overseas Investment Regulations, 2022.
This shows RBI’s cautious but evolving openness to global wealth structuring by Indian families.
Expert Views
- Vishal Gada, Aurtus: “Applications are viewed more favourably where trustees are immediate family members, as this preserves continuity of control within the promoter family.”
- Moin Ladha, Khaitan & Co: “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.”
Experts believe RBI may eventually formalize norms like SEBI, requiring trustees to be relatives of beneficiaries to ensure control remains within families.
Conclusion
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The RBI’s evolving stance on family trusts and investment companies reflects a pragmatic response to changing realities. With business families increasingly using trusts for succession planning, and with the possibility of inheritance tax on the horizon, the regulator is adapting to ensure stability, transparency, and continuity of control.
By aligning with SEBI and introducing safeguards, RBI is striking a balance between flexibility for families and regulatory oversight. This shift will likely encourage more families to adopt trust structures, reshaping India’s wealth management landscape.
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