Core Investment Company

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What is core investment company?

Core Investment Companies are limited companies holding equity shares, preference shares or debentures in other group companies. Often such companies are mainly establishing as group businesses and who controls the subsidiaries by holding majority shareholding and is defined as NBFCs by the RBI. Core investment company can not do trading of shares or debentures. RBI now approves that only those CICs having a net asset size of Rs.100 crore and above shall be recognized as systemically important core investment companies.

Core investment company can be classified in following categories

  • CIC is maintaining not less than 90% of net sales as Shares or debentures or bond or loan and advance in the group companies.
  • CIC's investments in the equity shares in group companies shall be not less than 60 percent of net assets. Net assets shall be determined as per the last audited balance sheet.

What is the registration requirement for core investment companies?

  • CIC (core investment company) with Asset size less than Rs. 100 Crore are excepted from license requirement from RBI under Section 45-IA of the RBI Act.
  • CICs with the assets size above Rs. 100 Crore if they are not accessing the public fund in any form direct or indirect are exempted from RBI License.
  • CICs having the asset size of 100 crore or above and accessing the public fund in any form deposit or debenture or bond are required to obtain approval from RBI under section 45-IA of the RBI Act.

What is Minimum Capital Adequacy Ratio and Leverage Ratio?

Leverage Ratio: Core investment companies are required to ensure that its total outside liabilities do not exceed 250% of adjusted net worth on the 1st April of the financial year.

Capital Adequacy Ratio: For every CIC-SI minimum capital adequacy ratio should be 30% of the adjusted net worth. Adjusted net worth means considering all off balance sheet item.

What is the adjusted Net worth?

Following calculation, need to be understood to calculate the adjusted Net worth as Non-Banking Financial (Non-Deposit Accepting or Holding) Companies Prudential Norms (Reserve Bank) Directions, 2007.

  • Net owned fund as per last audited balance sheet
  • +Plus
  • 45% of the amount standing to credit of revaluation reserve
  • +Plus

50% of the unrealized appreciation in the book value of quoted investments as at the date of the last audited balance sheet

  • Less
  • The amount of diminution in the aggregate book value of quoted investments.

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