Reserve Bank of India (RBI) on Thursday released a Review of Guidelines for Core Investment Companies which talks about risk management, corporate governance and disclosure requirements of the CICs. A report of the Working Group (WG) to Review the Regulatory and Supervisory Framework for Core Investment Companies (CICs), constituted under the Chairmanship of Shri Tapan Ray, former Secretary, Ministry of Corporate Affairs, Government of India was placed in the public domain in November 2018 seeking comments from the stakeholders.

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Core Investment Companies (CIC) is a non-banking financial company (NBFC) that deals in the business of acquisition of shares and securities and hold not less than 90% of its net assets in the form of investment in equity shares, preference shares, bonds, debentures, debt or loans in group companies. Its investments in equity shares in group companies constitute a minimum of 60% of its net assets.

The notification released by RBI defined the Adjusted Net Worth (ANW), as the amount representing any direct or indirect capital contribution made by one CIC in another CIC, to the extent such amount exceeds ten per cent of Owned Funds of the investing CIC, shall be deducted. All other terms and conditions for the computation of ANW remain the same.

For deciding about the Group Structure of the CICs the notification quoted, “To address the complexity in group structures and existence of multiple CICs within a group, it has been decided that the number of layers of CICs within a Group (including the parent CIC) shall be restricted to two, irrespective of the extent of direct or indirect holding/ control exercised by a CIC in the other CIC. If a CIC makes any direct/ indirect equity investment in another CIC, it will be deemed as a layer for the investing CIC.”

The parent CIC in the group or the CIC with the largest asset size, in case there is no identifiable parent CIC in the group, shall constitute a Group Risk Management Committee (GRMC). The GRMC shall report to the Board of the CIC that constitutes it and shall meet at least once in a quarter. The GRMC will comprise of:

  1.  A minimum of five members, including executive members.
  2. At least two members shall be independent directors, one of whom shall be the Chairperson of the GRMC.
  3. Members shall have adequate and commensurate experience in risk management practices.

 All the CICs with asset size of more than Rs.5,000 Crores shall appoint a Chief Risk Officers (CRO) with clearly specified roles and responsibilities.

“CICs shall submit to the Board, a quarterly statement of deviation certified by the Chief Executive Officer/ Chief Financial Officer, indicating deviations in the use of proceeds of any funding obtained by the CIC from creditors and investors from the objects/ purpose stated in the application, sanction letter or offer document for such funding,” said the notification.

The disclosure requirements will apply to all NBFC-CICs and Corporate governance requirements will be as per the Companies Act, 2013.

With Warm Regards,

CL Bureau.

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