Core Investment Company

A Core Investment Company (CIC) is an NBFC that primarily holds and manages group investments without engaging in trading or financial activities.

  • More Than 20 years of experience
  • Team Comprises of Ex Bankers, CAs, CSs and Lawyers
  • Fully Integrated Services
  • Transparency in engagement
  • Solution based approach
Enquire Now

Our Services

Core Investment Company - An Overview

A Core Investment Company (CIC) is a type of Non-Banking Financial Company (NBFC) regulated by the Reserve Bank of India (RBI). CICs primarily invest in shares of their own group companies for stake-holding purposes but are restricted from trading these instruments or engaging in other financial activities.

These companies hold investments in group companies rather than participating in trading activities. Typically, around 90% of their equity investments are in group entities, with at least 60% of their assets consisting of equity shares, preference shares, or other similar holdings.

Although regulated by the RBI, CICs do not engage in borrowing or lending activities. Until 2010, they were governed under general NBFC regulations. However, in 2010, the RBI introduced a distinct regulatory framework specifically for Core Investment Companies.

Defination of Core Investment Company

CIC means a core investment company having total assets of not less than Rs. 100 crore either individually or in aggregate along with other CICs in the Group and which raises or holds public funds.

RBI regulations applicable to CICs which carry on the business of acquisition of shares and securities and which satisfy the following conditions as of the date of the last audited balance sheet:-

  1. it holds 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;
  2. 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 and units of Infrastructure Investment Trusts (InvITs) only as sponsor constitute not less than 60% of its net assets as mentioned in clause (xviii) of sub-para (1) of paragraph 3 below;
  3. Provided that the exposure of such CICs towards InvITs shall be limited to their holdings as sponsors and shall not, at any point in time, exceed the minimum holding of units and tenor prescribed in this regard by SEBI (Infrastructure Investment Trusts) Regulations, 2014, as amended from time to time. It does not trade in its investments in shares, bonds, debentures, debt or loans in group companies except through block sale for the purpose of dilution or disinvestment;
  4. 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

a. Investment in

  • bank deposits
  • money market instruments, including money market mutual funds that make investments in debt/money market instruments with a maturity of up to 1 year.
  • government securities, and
  • bonds or debentures issued by group companies,

b. Granting of loans to group companies and

c. Issuing guarantees on behalf of group companies.

Note – 10% of net assets of CIC shall include real estate or other fixed assets which are required for its effective functioning, but shall not include other financial investments/loans in non-group companies.

Categories of Core Investment Company

Core Investment companies cannot accept deposits. This is one of the basic eligibility criteria of a Core Investment Company. The asset classification norms for CIC’s are:

  • CIC with assets less than Rs.100 Crore
  • CIC with assets more than Rs. 100 Crore

CICs (a) with an asset size of less than Rs. 100 crore, irrespective of whether accessing public funds or not and (b) with an asset size of Rs. 100 crore and above and not accessing public funds are not required to register with the Bank under Section 45IA of the RBI Act, 1934 in terms of notification No. DNBS.PD.221/CGM (US) 2011 dated January 5, 2011, and will be termed as ‘Unregistered CICs’. However, CICs may be required to issue guarantees or take on other contingent liabilities on behalf of their group entities. Before doing so, all CICs must ensure that they can meet the obligations thereunder, as and when they arise. In particular, Unregistered CICs must be in a position to do so without recourse to public funds in the event the liability devolves, else they shall approach the RBI for registration before accessing public funds.

If unregistered CICs with asset size above Rs. 100 crore access public funds without obtaining a Certificate of Registration (CoR) from the Bank, they shall be violating Core Investment Companies (Reserve Bank) Directions, 2016.

Investment from FATF Non-Complaint Jurisdictions

  1. Investments in CICs from FATF non-compliant jurisdictions shall not be treated at par with that from the compliant jurisdictions. New investors from or through non-compliant FATF jurisdictions, whether in existing CICs or in companies seeking Certification of Registration (COR), should not be allowed to directly or indirectly acquire ‘significant influence’ in the investee, as defined in the applicable accounting standards. In other words, fresh investors (directly or indirectly) from such jurisdictions in aggregate should be less than the threshold of 20 per cent of the voting power (including potential5 voting power) of the CIC.
  2. Investors in existing CICs holding their investments prior to the classification of the source or intermediate jurisdiction/s as FATF non-compliant, may continue with the investments or bring in additional investments as per extant regulations so as to support continuity of business in India.

Group Structure

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. While the regulation shall be applicable from August 13, 2020, existing entities shall reorganise their business structure and adhere to this guideline latest by March 31, 2023.

'Fit And Proper' Criteria for Directors of CICS

Reserve Bank had issued a Directive in June 2004 to banks on undertaking due diligence on the persons before appointing them on the Boards of banks based on the ‘Report of the Consultative Group of directors of Banks / Financial Institutions’. Specific ‘fit and proper’ criteria to be fulfilled by the directors were also advised.

The importance of due diligence of directors to ascertain suitability for the post by way of qualifications, technical expertise, track record, integrity, etc. needs no emphasis for any financial institution. It is proposed to follow the same guidelines mutatis mutandis in case of CICs also. While the Reserve Bank does carry out due diligence on directors before issuing Certificate of Registration to an CIC, it is necessary that CICs put in place an internal supervisory process on a continuing basis. Further, in order to streamline and bring in uniformity in the process of due diligence, while appointing directors, CICs shall ensure that the procedures mentioned below are followed and minimum criteria fulfilled by the persons before they are appointed on the Boards:

  1. CICs shall undertake a process of due diligence to determine the suitability of the person for appointment / continuing to hold appointment as a director on the Board, based upon qualification, expertise, track record, integrity and other ‘fit and proper’ criteria. CICs shall obtain necessary information and declaration from the proposed / existing directors for the purpose in the format given by RBI.
  2. The process of due diligence shall be undertaken by the CICs at the time of appointment / renewal of appointment.
  3. The boards of the CICs shall constitute Nomination and Remuneration Committeesto scrutinize the declarations.
  4. Based on the information provided in the signed declaration, Nomination and Remuneration Committeesshall decide on the acceptance or otherwise of the directors, where considered necessary.
  5. CICs shall obtain annually as on 31st March a simple declaration from the directors that the information already provided has not undergone change and where there is any change, requisite details are furnished by them forthwith.
  6. The Board of the CIC must ensure in public interest that the nominated/ elected directors execute the deeds of covenants in the format given by RBI.

Reporting Requirements

The reporting requirements in respect of CICs as prescribed by Department of Supervision shall be adhered to.

Consolidation of Financial Statement (CFS)

CICs shall prepare CFS as per provisions of Companies Act, 2013, so as to provide a clear view of the financials of the group as a whole. However, it is possible that entities that meet the definition of group as per extant regulations are not covered under consolidation due to exemptions granted as per statutory provisions/ applicable accounting standards. For such entities which are not included in the consolidation, disclosures shall be made in the indicative format mentioned at paragraph 2 of the RBI direction. In the process of consolidation, the auditor of a CIC, as the ‘principal auditor’, shall use the work of other auditors with respect to the financial information of other respective entities, subject to auditing standards as also guidance notes issued by the Institute of Chartered Accountants of Indiafrom time to time.

Guiddelines on Investment in Insurance - Entry into Insurance Business

The aspirant CICs shall make an application along with necessary particulars duly certified by their statutory auditors to the Regional Office of Department of Supervision under whose jurisdiction the registered office of the CIC is situated. Any CIC registered with the Bank which satisfies the eligibility criteria given below may be permitted to set up a joint venture company for undertaking insurance business with risk participation, subject to safeguards. No ceiling is prescribed for CICs in their investment in an insurance joint venture. The maximum equity contribution such a CIC can hold in the joint venture company shall be as per IRDA approval.

  1. The eligibility criteria for joint venture participant shall be as under, as per the latest available audited balance sheet.
    • The owned funds of the CIC shall not be less than ₹500 crore;
    • The level of net non-performing assets shall be not more than 1% of the total advances;
    • The CIC shall have registered net profit continuously for three consecutive years;
    • The track record of the performance of the subsidiaries, if any, of the concerned CIC shall be satisfactory;
    • The CIC shall comply with all applicable regulations including these Directions. Thus, CICs are required to maintain adjusted net worth which shall be not less than 30% of aggregate risk weighted assets on balance sheet and risk adjusted value of off-balance sheet items.
  2. No CIC shall be allowed to conduct such business departmentally. Further, a NBFC (in its group / outside the group) shall normally not be allowed to join an insurance company on risk participation basis and hence shall not provide direct or indirect financial support to the insurance venture.
  3. Within the group, CICs shall be permitted to invest up to 100% of the equity of the insurance company either on a solo basis or in joint venture with other non-financial entities in the group. This shall ensure that only the CIC either on a solo basis or in a joint venture with the group company is exposed to insurance risk and the NBFC within the group is ring-fenced from such risk.
  4. In case where a foreign partner contributes 26 per cent of the equity with the approval of Insurance Regulatory and Development Authority/Foreign Investment Promotion Board, more than one CIC may be allowed to participate in the equity of the insurance joint venture. As such participants shall also assume insurance risk, only those CICs which satisfy the criteria given Paragraph 44(1) of the RBI direction, shall be eligible.
  5. CICs shall not enter into insurance business as agents. CICs that wish to participate in insurance business as investors or on risk participation basis shall be required to obtain prior approval of the Bank. The Bank will give permission on case to case basis keeping in view all relevant factors. It shall be ensured that risks involved in insurance business do not get transferred to the CIC.

Notes:

  1. Holding of equity by a promoter CIC in an insurance company or investment in insurance business shall be subject to compliance with any rules and regulations laid down by the IRDA/Central Government. This shall include compliance with Section 6AA of the Insurance Act as amended by the IRDA Act, 1999, for divestment of equity in excess of 26 per cent of the paid up capital within a prescribed period of time.
  2. CICs exempted from registration with the Bank in terms of these Directions, shall not require prior approval provided they fulfill all the necessary conditions of exemption.

Acquisition / Transfer of Control

  1. A CIC as defined in clause (viii) of sub-para (1) of paragraph 3 of RBI Directions, shall require prior written permission of the Bank for the following:
    • any takeover or acquisition of control of CIC, which may or may not result in change of management;
    • any change in the shareholding of CIC, including progressive increases over time, which results in acquisition / transfer of shareholding of 26 per cent or more of the paid up equity capital of the CIC.

      Provided that, prior approval shall not be required in case of any shareholding going beyond 26% due to buyback of shares / reduction in capital where it has approval of a competent Court. The same is to be reported to the Bank not later than one month from its occurrence;
    • any change in the management of the CIC which results in change in more than 30 per cent of the directors, excluding independent directors.

      Provided that, prior approval shall not be required in case of directors who get re-elected on retirement by rotation.
  2. Notwithstanding clause (i), CICs shall continue to inform the Bank regarding any change in their directors / management not later than one month from the occurrence of any change.

Application for prior approval

  1. CICs shall submit an application, in the company letter head, for obtaining prior approval of the Bank as above, along with the following documents:
    • Information about the proposed directors / shareholders as per RBI format;
    • Sources of funds of the proposed shareholders acquiring the shares in the CIC;
    • Declaration by the proposed directors / shareholders that they are not associated with any unincorporated body that is accepting deposits;
    • Declaration by the proposed directors / shareholders that they are not associated with any company, the application for Certificate of Registration (CoR) of which has been rejected by the Bank;
    • Declaration by the proposed directors / shareholders that there is no criminal case, including for offence under Section 138 of the Negotiable Instruments Act, against them; and
    • Bankers’ Report on the proposed directors / shareholders.
  2. Applications in this regard shall be submitted to the Regional Office of the Department of Supervision in whose jurisdiction the Registered Office of the CIC is located.

Requirement of Prior Public Notice about change in control

  1. A public notice of at least 30 days shall be given before effecting the sale of, or transfer of the ownership by sale of shares, or transfer of control, whether with or without sale of shares. Such public notice shall be given by the CIC and also by the other party or jointly by the parties concerned, after obtaining the prior permission of the Bank.
  2. The public notice shall indicate the intention to sell or transfer ownership / control, the particulars of transferee and the reasons for such sale or transfer of ownership / control. The notice shall be published in at least one leading national and in one leading local (covering the place of registered office) vernacular newspaper.

 

FAQ's

Central KYC Registry is a centralized repository of KYC records of customers in the financial sector with uniform KYC norms and inter-usability of the KYC records across the sector with an objective to reduce the burden of producing KYC documents and getting those verified every time when the customer creates a new relationship with a financial entity.

Central KYC Registry has the below salient features:

  1. Facilitates uniformity & inter-usability of KYC records & process across the financial sector.
  2. Unique KYC identifier linked with independent ID proofs.
  3. Substantial cost reduction by avoiding multiplicity of registration and data upkeep.
  4. KYC data and documents stored in a digitally secure electronic format.
  5. Facilitates KYC Search, Upload, Download, Update.
  6. Secure and advanced user authentication mechanisms for system access.
  7. Data de-duplication to ensure single KYC identifier per applicant.
  8. Real time notification to institutions on updation in KYC details.
  9. Seamless file exchange processes without the need for manual intervention.
  10. API’s for search and download allow for real time account opening for CKYC compliant customers.

FREE CONSULTATION