In October 2021, the Reserve Bank of India filed applications to initiate corporate insolvency resolution against two companies: Srei Infrastructure Finance Limited and Srei Equipment Finance Limited. The press release (Application for initiation of corporate insolvency) confirmed it was filed under Section 227 read with clause (zk) of sub-section (2) of Section 3 of the Insolvency and Bankruptcy Code, 2016. This was the RBI using the IBC's special provision that allows the central bank — not just creditors — to trigger insolvency for financial service providers. Three years earlier, Infrastructure Leasing & Financial Services Limited (IL&FS) had collapsed in a crisis that exposed systemic weaknesses in how India regulated a peculiar species of NBFC: the Core Investment Company.
The Srei companies were not Core Investment Companies. But their failure — like IL&FS before them — revealed the same structural truth: when NBFCs that channel funds within corporate groups or finance long-gestation infrastructure are inadequately supervised, the consequences ripple through the entire financial system. The RBI's response has been a decade-long process of progressively tightening regulation on the entities that operate in the shadows of Indian corporate finance: CICs, Infrastructure Finance Companies, Infrastructure Debt Funds, and factoring companies.
See also: Scale Based Regulation: The NBFC Tiering Framework | NBFC Regulation: The Complete Timeline | How the RBI Tiered 10,000 NBFCs by Risk
What is a Core Investment Company — and why does the RBI regulate a holding company?
A Core Investment Company is an NBFC whose primary business is holding investments in group companies. Under the Regulatory Framework for Core Investment Companies, August 2010 RBI/2010-11/168, a CIC must hold not less than 90% of its total assets in the form of investments in equity shares, preference shares, debt, or loans in group companies. At least 60% of total assets must be in equity investments. It cannot trade these investments — only hold them or sell through block sales for divestment. And it cannot carry on any other financial activity except investing in bank deposits, money market instruments, government securities, or providing loans and guarantees to group companies.
In other words, a CIC is a holding company that the RBI chose to regulate as an NBFC. Why regulate a holding company at all? Because CICs are not passive investors. They channel funds between group entities. A parent company raises debt — through commercial paper, debentures, or bank borrowings — and passes it downstream through its CIC to operating subsidiaries. The CIC sits at the centre of intra-group financial flows, and if it is unregulated, it becomes a vehicle for round-tripping: money moving from one group entity to another to inflate balance sheets, create the appearance of independent transactions, or evade exposure limits that apply to individual entities.
"Companies which have their assets predominantly as investments in shares for holding stake in group companies but not for trading, and also do not carry on any other financial activity, i.e., Core Investment Companies, (CICs), justifiably deserve a differential treatment in the regulatory prescription applicable to Non-Banking Financial Companies." — CIC Regulatory Framework, August 2010 RBI/2010-11/168
The 2010 framework set the threshold: CICs with assets of Rs 100 crore and above were classified as Systemically Important Core Investment Companies (CICs-ND-SI) and required to obtain a Certificate of Registration from the RBI. CICs below Rs 100 crore were exempt. The capital requirements were lighter than for regular NBFCs: an Adjusted Net Worth of at least 30% of aggregate risk-weighted assets, and a leverage ratio capping outside liabilities at 2.5 times Adjusted Net Worth. In exchange, compliant CICs were exempted from the standard NBFC net owned fund requirements and exposure norms.
Why lighter capital requirements? Because the 2010 logic was that CICs were "just holding companies." Their assets were equity investments in group companies, not loans to the public. The risk profile was considered different from a lending NBFC. But this logic contained a fatal assumption: that holding companies are not systemically interconnected. IL&FS proved that assumption catastrophically wrong.
What did IL&FS expose about CIC regulation?
IL&FS — Infrastructure Leasing & Financial Services Limited — was classified as a CIC. It held investments across hundreds of group entities engaged in infrastructure projects: roads, power plants, water treatment facilities, urban infrastructure. The group's total debt exceeded Rs 90,000 crore. When IL&FS defaulted on commercial paper and bond obligations in September 2018, the crisis was not confined to one company. It cascaded through the group's intricate network of subsidiaries, special purpose vehicles, and joint ventures — and then outward to the banks, mutual funds, and insurance companies that had lent to or invested in IL&FS entities.
The RBI's April 2019 circular requiring banks and AIFIs to disclose their exposure to IL&FS RBI/2018-19/175 was issued under directions from the National Company Law Appellate Tribunal. The May 2019 follow-up RBI/2018-19/181 (since withdrawn) extended the disclosure requirements. Why did the RBI need NCLAT directions to mandate disclosure? Because the government had superseded the IL&FS board under Section 241 of the Companies Act, placing the resolution under the company law tribunal rather than the banking regulator. The IL&FS crisis exposed a jurisdictional complexity: a CIC regulated by the RBI was being resolved by the company law machinery, with the RBI's role limited to directing its regulated entities — the banks — to disclose their exposures.
What did IL&FS teach the regulator? Three things. First, that CICs are not passive. They actively raise funds from the market and channel them through complex group structures. The "just a holding company" assumption was wrong. Second, that interconnectedness is the real risk. IL&FS had over 300 group entities. Failure at the top cascaded downward and outward. Third, that lighter regulation for CICs — justified by the "different risk profile" logic — actually enabled the risk to grow unchecked. By the time the market understood the scale of the problem, the crisis was systemic.
"CICs with an asset size of Rs 100 crores or more will be considered as Systemically Important Core Investment Companies (CICs-ND-SI) and would be required to obtain Certificate of Registration (COR) from RBI under Section 45-IA of the Reserve Bank of India Act, 1934." — CIC Framework, August 2010 RBI/2010-11/168
What are Infrastructure Finance Companies and Infrastructure Debt Funds — and why do they exist as separate categories?
The NBFC universe is not monolithic. The RBI created specialized categories for entities that serve specific economic functions, and two of the most important are Infrastructure Finance Companies (IFCs) and Infrastructure Debt Funds (IDFs).
An IFC is an NBFC that deploys at least 75% of its total assets in infrastructure loans. It finances the construction of roads, ports, power plants, telecom networks, and urban infrastructure. The Master Circular on Exemptions from RBI Act provisions, July 2015 RBI/2015-16/15 (since withdrawn) covers the exemptions and conditions that different NBFC categories — including IFCs — operate under. Why a separate category? Because infrastructure has fundamentally different characteristics from other lending. A road project takes five to seven years to build and twenty years to generate revenue. A manufacturing loan has a gestation period of one to two years. If an IFC is forced to comply with the same asset-liability management norms as a consumer lending NBFC, the mismatch between its asset duration (20 years) and its liability duration (3-5 year bonds) would make the business unworkable.
IDFs — Infrastructure Debt Funds — are the refinancing layer. The November 2011 circular on banks as sponsors to IDFs RBI/2011-12/269 enabled the IDF structure. An IDF-NBFC takes over infrastructure loans from banks after the construction phase is complete and the project is generating revenue. It refinances the loan — replacing the bank's short-tenor debt with longer-tenor bonds. The bank frees up its balance sheet for new lending. The IDF holds a lower-risk asset (an operational project generating cash flows) and funds itself through bond issuance.
Why does this matter? Because banks do not want to hold 20-year infrastructure loans. A bank's deposits are mostly short-term — savings accounts, current accounts, 1-3 year fixed deposits. Lending long against short deposits creates a maturity mismatch that regulators penalise. IDFs solve this by providing a take-out mechanism: the bank originates the loan, bears the construction risk, and then sells the loan to an IDF that is structured for long-duration assets.
"In order to accelerate and enhance the flow of long term funds to infrastructure projects for undertaking the Government's ambitious programme of infrastructure development." — Banks as Sponsors to IDFs, November 2011 RBI/2011-12/269
What are factoring companies — and how do they connect to MSMEs?
A factoring NBFC buys trade receivables — invoices that a seller has issued to a buyer but has not yet been paid. The seller gets immediate cash (at a discount). The factor collects payment from the buyer when the invoice comes due. The Master Circular on NBFC-Factors Directions, July 2015 RBI/2015-16/27 (since withdrawn) governs these entities.
Why did the RBI create a separate category for factoring? Because factoring serves a critical function in the MSME ecosystem. Small manufacturers and suppliers sell goods to large corporations on credit — payment terms of 60 to 120 days are common. But the MSME needs cash now, to pay workers, buy raw materials, and fund the next order. Without factoring, the MSME either waits (and faces a cash crunch) or borrows from moneylenders at exorbitant rates.
The connection to the TReDS (Trade Receivables Discounting System) platform is direct. TReDS is an electronic exchange where MSMEs can auction their receivables to multiple financiers — including factoring NBFCs. The Revised Regulatory Framework for NBFCs, March 2015 RBI/2014-15/520 (since withdrawn) placed factoring companies within the broader NBFC prudential framework while recognising their specialised role. The factoring NBFC that operates on TReDS is not just a financial intermediary — it is a critical link in the supply chain finance ecosystem that determines whether small suppliers survive or collapse.
Why regulate factoring companies separately rather than treating them as generic NBFCs? Because the risk profile is different. A factoring NBFC's asset is a trade receivable — a claim against a buyer who has already received goods. The credit risk is the buyer's creditworthiness, not the seller's. The asset is short-term (30-120 days) and self-liquidating (the buyer pays when the invoice is due). This is fundamentally different from a lending NBFC whose assets are term loans with multi-year tenors. Applying identical prudential norms to both would either over-regulate the factor or under-regulate the lender.
How did Scale Based Regulation change CIC oversight?
The Scale Based Regulation framework of October 2021 RBI/2021-22/112 (since withdrawn) restructured the entire NBFC regulatory architecture into four layers: Base, Middle, Upper, and Top. CICs were explicitly placed in this framework. The SBR framework effectively superseded the standalone CIC capital norms from 2010 — the old 30% Adjusted Net Worth requirement and the 2.5x leverage ceiling were absorbed into a layered structure where the capital and governance obligations now scale with the CIC's systemic footprint rather than applying uniformly to every CIC above Rs 100 crore. A CIC in the Upper Layer faces governance requirements equivalent to a bank: majority independent board, mandatory risk management committee, audit committee composition rules, and chief compliance officer appointment.
The RBI press release announcing the Upper Layer list (RBI releases list of NBFCs in the Upper Layer unde) in September 2022 made the categorisation public. The Governor's meeting with Upper Layer NBFC heads in August 2023 (Governor, Reserve Bank of India meets MD & CEOs of) signalled that the RBI expected these entities to operate at a higher standard. Why meet with CEOs personally? Because the governance failures that led to IL&FS and Srei were not failures of rules — they were failures of management accountability. Face-to-face engagement with senior management is the RBI's way of establishing that accountability runs to the top.
"The contribution of NBFCs towards supporting real economic activity and their role as a supplemental channel of credit intermediation alongside banks is well recognised. Over the years, the sector has undergone considerable evolution in terms of size, complexity, and interconnectedness within the financial sector." — Scale Based Regulation, October 2021 RBI/2021-22/112 (since withdrawn)
The November 2025 consolidation further tightened the framework. The Non-Banking Financial Companies — Transfer and Distribution of Credit Risk Directions, 2025 (Reserve Bank of India (Non-Banking Financial Compa) and the Acquisition of Shareholding or Control Directions, 2025 (Reserve Bank of India (Non-Banking Financial Compa) apply to all NBFCs — including CICs. The Financial Statements: Presentation and Disclosures Directions (Reserve Bank of India (Non-Banking Financial Compa) require transparency in how NBFCs report their financial position. For CICs, this means their intra-group transactions — the very flows that make them systemically significant — must be disclosed in a standardised format that regulators and the market can scrutinise.
The trajectory is clear: from exemption in 2010 (CICs were not even required to register before the framework) to registration and light regulation in 2010, to inclusion in the SBR tiering framework in 2021, to bank-equivalent governance for Upper Layer CICs by 2025. Each step was triggered by a failure — IL&FS, Srei, DHFL — that showed the previous level of regulation was insufficient. The RBI learns by crisis, but it also learns cumulatively. The April 2026 regulatory framework for CICs, IFCs, IDFs, and factoring companies is more comprehensive than anything that existed a decade ago. Whether it is comprehensive enough to prevent the next systemic failure is the question that regulators ask themselves — and that only the next crisis will answer.
"The Reserve Bank has today (October 08, 2021) filed applications for initiation of corporate insolvency resolution process against Srei Infrastructure Finance Limited and Srei Equipment Finance Limited." — Srei IBC Filing, October 2021 (Application for initiation of corporate insolvency)
Last updated: April 2026