The Reserve Bank of India (RBI) has formed a working group with the aim to bolster Core Investment Companies (CIC). This group, led by ex-Corporate Affairs Secretary Tapan Ray, has set forth several recommendations to strengthen these companies.
About Core Investment Companies
Core Investment Companies (CICs) are specific Non-Banking Financial Companies (NBFCs). They need to be registered with the RBI and are required to possess an asset size higher than INR 100 crores. Their principal business model revolves around the acquisition of shares and securities, however, certain conditions do apply. For instance, they must hold at least 90% of their net assets in the form of investment in equity shares, preference shares, bonds, debts, or loans in group companies.
Group companies are determined through multiple forms of relationships such as subsidiary, joint venture, associate, promoter-promotee for listed companies, a related party, common brand name, or by having an investment in equity shares of 20% and more.
Key Recommendations Made by the Group
- Registration: The group proposed that the present threshold of INR 100 crore asset size and accessibility to public funds for CIC registration should not be altered.
- Relationship with Group Companies: It is recommended that every group possessing a CIC should also have a Group Risk Management Committee. Furthermore, the layers of CICs within a group should not surpass two. Here, ‘layer’ signifies subsidiary or subsidiaries of the holding company.
- Improved Governance: The group suggests CICs to introduce independent directors, conduct internal audits, and formulate consolidated financial statements. They also advised ring fencing boards of CICs by eliminating employees/executive directors of group firms from their board. Additionally, CICs should create board-level committees like Audit Committee, Nomination and Remuneration Committee, and Group Risk Management Committee.
- Step-down CICs: A Step-down CIC is a subsidiary of another company, which itself is a subsidiary of the parent company. The group advised that such CICs should not be permitted to invest in any other CIC, while granting them freedom to invest in other group companies.
Facts on Core Investment Companies
| Fact | Details |
|---|---|
| Asset Size | Above INR 100 crore |
| Main Business | Acquisition of shares and securities |
| Minimum Asset Holding | At least 90% in the form of investment in equity shares, preference shares, bonds, debentures, debt or loans in group companies |
| Subsidiary Limit | No more than two layers in a group |
Final Recommendations
The group’s final recommendations suggest that capital contributions by a CIC to a step-down CIC, over and above 10% of its owned funds, needs to be deducted from its adjusted net worth. This recommendation aligns with the regulations applicable to other NBFCs. These proposed measures aim to provide a structured approach towards enhancing the performance of CICs.
