IAS प्रिलिम्स ऑनलाइन कोर्स (Pendrive)
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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.

Source: IE

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