Friday, August 20, 2010

RBI: Regulatory Framework on Core Investment Companies

An earlier post had discussed a Reserve Bank of India (RBI) proposal on regulation of Core Investment Companies; and had discussed the draft guidelines which the RBI had proposed. The RBI has now released the ‘Regulatory Framework for Core Investment Companies’. A Core Investment Company (CIC) is defined as being an NBFC carrying on the business of acquisition of shares and securities which satisfies the following conditions:

i. it holds not less than 90% of its Total Assets (total assets also being defined in a separate clause) in the form of investment in equity shares, preference shares, debt or loans in group companies.

ii. its investments in the equity shares (including instruments compulsorily convertible into equity shares within a period not exceeding 10 years from the date of issue) in group companies constitutes not less than 60% of its Total Assets.

iii. it does not trade in its investments in shares, debt or loans in group companies except through block sale for the purpose of dilution or disinvestment.

iv. it does not carry on any other financial activity referred to in Section 45I(c) and 45I(f) of the Reserve Bank of India Act, 1934 except investment in bank deposits, money market instruments, government securities, loans to and investments in debt issuances of group companies or guarantees issued on behalf of group companies.

Among other things, all CICs with an asset size of less than Rs.100 crores would be exempted from the requirements of registration with RBI. For this purpose all CICs belonging to a Group will be aggregated. CICs with an asset size of Rs 100 crores or more will be considered as Systemically Important Core Investment Companies (CICs-ND-SI) and would be required to obtain Certificate of Registration (COR) from RBI under Section 45-IA of the Reserve Bank of India Act, 1934. Minimum Capital Ratios and Leverage Ratios have been prescribed for CICs-ND-SI. The notification (dated August 12, 2010) is available here.

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