Pursuant to the circular dated 13 August 2020 and on the recommendations of the Report of Working Group and inputs received from stakeholders, RBI has revised the guidelines applicable for Core Investment Companies (“CICs”) (“Revised Guidelines”) in following manner:
- Adjusted Net worth (“ANW”):
The Revised Guidelines now provide that any capital contribution made by one CIC in another CIC shall be deducted while computing ANW if it exceeds ten percent of Owned Funds of the investing CIC. There is no change in the remaining terms and conditions in computing ANW.
The requirement on deduction shall be effective with effect from 13 August 2020. If the investment is already in excess of the mentioned thresholds, the CIC need not deduct the excess investment till March 31, 2023.
- Group Structure:
To address the complexity in group structures and existence of multiple CICs within a group, the Revised Guidelines provide that there can be only 2 layers of CICs within a Group.
If a CIC makes any equity investment in another CIC, it will be deemed as a ‘layer’. Existing entities which do not meet this requirement are required to re-organize their business structure and adhere to this requirement by March 31 2023.
- Risk Management:
The Revised Guidelines now require that the parent CIC or CIC with the largest asset size in the group shall constitute a Group Risk Management Committee (“GRMC”).
The composition, qualification and responsibilities of GRMC have been stated in Revised Guidelines. CICs or CICs via Chief Risk Officers (“CRO”) shall initiate corrective action on recommendations of the GRMC, where necessary.
- Corporate Governance and Disclosure Requirements:
The Revised Guidelines provide that the corporate governance requirements for CIC will be as per the Companies Act, 2013.
The disclosure requirements for CIC are set out as an annexure to the Revised Guidelines. Further, the CICs are now required to put in place a policy for ascertaining the ‘fit and proper’ status of directors not only at the time of appointment, but also on a continuing basis.
- Consolidation of Financial Statement (“CFS”):
CICs are now required to prepare CFS as per Companies Act, 2013.
- Investments by CICs:
CICs are allowed to invest in money market instruments, including mutual funds which make investments in money market instruments/debt instruments with a maturity up to 1 year.
CICs with less than 100 crore asset size, whether accessing public funds or not, and with an asset size of 100 crore and above and not accessing public funds are now not required to register themselves with the Bank under Section 45IA of the RBI Act, 1934.
- Change in Nomenclature:
A Systemically Important Core Investment Company will be termed as a Core Investment Company.
A CIC which is not required to be registered in view of the revised provisions relating to registration (as set out in point (7) above will go forward be termed as ‘Unregistered CIC’ instead of “exempted CIC”.
- Indian Accounting Standards:
CICs implementing Indian Accounting Standards are required to adhere to the circular dated March 13, 2020 on Implementation of Indian Accounting Standards.
- All CICs shall adhere to the guidelines on Submission of Data to Credit Information Companies as per para 100 and 101 of Master Direction.
The circular can be accessed here.