RBI Issues 2025 NOFHC Directions to Segregate Core Banking and Specialised Financial Activities

DOR.RAUG.AUT.REC.No.344/24.01.041/2025-26; Dated: 05.12.2025

1. Effective Date

The Reserve Bank of India (RBI) has released its 2025 Directions on Non-Operative Financial Holding Companies (NOFHCs). The revised framework becomes effective from December 5, 2025 and applies to banking-led financial group structures operating under the NOFHC model.

2. Segregation of Core and Specialised Financial Activities

The Directions reiterate a clear functional segregation between regulated banking business and other specialised financial services within a financial group.

2.1 Core Banking Activities

• All core banking activities permitted under the Banking Regulation Act, 1949 must be conducted exclusively by the bank itself.
• NOFHCs are not permitted to directly carry out banking functions.

2.2 Specialised Financial Activities

For all specialised activities—including:

• Mutual funds
• Insurance
• Pension fund administration
• Portfolio management services
• Brokerage and trading services

the Directions mandate that these must be undertaken only through:

• Subsidiaries
• Joint ventures
• Associates

This ensures proper ring-fencing of risks and regulatory clarity between banking business and market-facing financial services.

3. Board Approval and Intimation Requirement

Where a NOFHC or its banking group proposes to undertake any of the above specialised activities:

• Board approval must be obtained first
• NOFHCs must inform the RBI within 15 days from the date of such board approval

This requirement enables transparent regulatory reporting and ongoing supervisory visibility.

4. Prior RBI Approval for Other Activities

For any activity outside the list of permitted specialised services, the Directions mandate:

• Prior written approval of RBI is compulsory
• This ensures that NOFHCs do not initiate new or non-core business lines without supervisory vetting or prudential risk evaluation

5. Regulatory Intent

The 2025 Directions reinforce several key supervisory objectives:

• Strict functional segregation between banks and their market-facing group entities
• Group-level risk containment, especially where non-core activities pose reputational, compliance, credit, or market risks
• Transparent group structuring and governance standards
• Prevention of unregulated expansion of activities without RBI’s evaluation
• Alignment of NOFHC structures with prudential, ownership, and capital protection frameworks

6. Compliance Considerations for NOFHCs

Entities under the NOFHC model must:

• Map existing and proposed activities to confirm whether they fall under banking business or specialised financial services
• Ensure board processes, governance notes, and compliance manuals reflect:

1. 1. Subsidiary or JV structuring for specialised activities
   2. 15-day reporting timelines to RBI
   3. Prior approval protocols for unlisted or new activities

• Strengthen group-level risk management, reporting, and disclosure frameworks
• Avoid direct execution of specialised activities at the bank level

Non-compliance may invite prudential restrictions, supervisory directions, or enforcement action.

Click Here To Read The Full Update