Indian Economy
Core Investment Companies
- 07 Nov 2019
- 3 min read
Why in News
A working group formed by the Reserve Bank of India (RBI) has recommended measures to strengthen Core Investment Companies (CIC). The group is headed by the former Corporate Affairs Secretary - Tapan Ray.
Core Investment Companies
- Core Investment Companies (CICs) are a specialized Non-Banking Financial Companies (NBFCs).
- A Core Investment Company registered with the RBI has an asset size of above Rs 100 crore.
- Their main business is acquisition of shares and securities with certain conditions.
- For e.g. these should not hold 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.
- Group companies are an arrangement involving two or more entities related to each other through any of the following relationships, viz.,subsidiary, joint venture, associate, promoter-promotee for listed companies, a related party, common brand name, and investment in equity shares of 20% and above.
Key Recommendations
- Registration: The current threshold of Rs 100 crore asset size and access to public funds for registration as CIC should be retained.
- Related to Group Companies:
- Every group having a CIC should have a Group Risk Management Committee.
- The number of layers of CICs in a group should be restricted to two. As such, any CIC within a group shall not make investments through more than a total of two layers of CICs, including itself.
- The word “layer”, means subsidiary or subsidiaries of the holding company.
- For Better Governance:
- CICs need to induct independent directors, conduct internal audits and prepare consolidated financial statements.
- There is a need for ring fencing boards of CICs by excluding employees/executive directors of group firms from its board.
- CICs should constitute board-level committees — Audit Committee, Nomination and Remuneration Committee and Group Risk Management Committee.
- For Step - down CICs:
- A Step-down CIC means the subsidiary company of a company which is a subsidiary of another company.
- Step-down CICs may not be permitted to invest in any other CIC, while allowing them to invest freely in other group companies.
- Capital contribution by a CIC in a step-down CIC, over and above 10% of its owned funds, should be deducted from its adjusted net worth, as applicable to other NBFCs.
