What is Core Investment Company?
A Core Investment Company (CIC) is categorized as a Non Banking Financial Company (NBFC) by the Reserve Bank of India (RBI). These companies predominately invest in shares of its own group companies for stakeholding but cannot engage in trading of these instruments or carry out any other kind of financial activity.
Categories of Core Investment Company
None of the Core Investment companies can accept deposits. This is one of the basic eligibility criteria of a Core Investment Company. The asset classification norms for CIC's are:-
- Registered CIC’s with assets less than Rs. 100 crore worth follow the norms specified in the Non-Systematically Important NBFC Prudential Norms, 2015.
- For those with assets more than Rs. 100 core follows the norm as specified in Systematically Important NBFC Prudential Norms Directions, 2015.
Approval Requirements for Core Investment Company
CIC's with asset size of Rs. 100 crore or more are treated as systemically important Core Investment Company (CIC-ND-SI) by RBI. All Core Investment Companies are required to be registered with the Reserve Bank of India under section 45 IA of the RBI Act 1934 and thereby obtain a Certificate of Registration.
Exemptions from Registration:
- CIC’s that have an asset size of less than Rs. 100 crore are exempted from registration as per the Act – the aggregate asset size of a Core Investment Company is calculated by totaling individual sizes of all the CIC’s belonging to a particular group. In case the total asset size is Rs. 100 crore or more the Core Investment Company has to register.
- CIC’s that are worth Rs. 100 crore or more but are not accessing public funds are exempted.
However, it is important to note here that such CIC’s that have asset size below Rs. 100 would be required to mandatorily register with RBI in case they are planning to make overseas investments in the financial sector. They also need to comply with all the requirements and conditions as applicable to registered CIC-ND-SI. However, if the particular Core Investment Company is investing overseas in the non-financial sector, it does not require to be registered with RBI.
As per the Act, all Core Investment Companies that have asset size of less than Rs. 100 crore would be required to apply for the certificate of registration within a period of 3 months from the date of achieving Rs. 100 crore in the balance sheet.
General Obligation for a Core Investment Company
As per the Core Investment Companies (Reserve Bank) Directions, 2016, the following need to be fulfilled by all CICs, as per the last audited balance sheet:-
- The Core Investment Company needs to hold 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. The balance 10% of Net assets that the CIC’s can hold outside the group include real estate or other types of fixed assets that are essential for running the company but cannot be financial investments or loans in non-group companies.
- It cannot trade in its investments in shares, bonds, debentures, debt or loans in group companies except through block sale with the purpose of diluting or disinvestment.
- The investment of the company in the shares of the group companies need to be at least 60% of the net worth of its assets.
- The Core Investment Company is not allowed to carry out any other financial activity other than:-
- the company can issue guarantees on behalf of group companies
- it can invest in bank deposits; money market mutual fund, liquid mutual funds, and other money market instruments; government securities; bonds and debentures of group companies; and granting of loans to group companies.
A CIC-ND-SI that is a systematically important Core Investment Company needs to have an asset size of Rs. 100 crore and more, should raise or hold public funds as well as fulfill all the criteria stated above. For such a company, it is mandatory to be registered with the Reserve Bank of India as operating without obtaining a Certificate of Registration from the apex bank; they are viewed as violating the Core Investment Companies (Reserve Bank) Directions, 2016.
The Process of Registration of CIC-ND-SI
- The Core Investment Company needs to download the application form for registration from the website of RBI.
- It needs to be filled in and submitted to the Regional Office of DNBS (Department of Non-Banking Supervision) along with the supporting documents as mentioned in the form. The DNBS has to be the one under whose jurisdiction the company is registered.
The CIC's that are exempted from registration, however, need to pass a Board Resolution that they will not in the future indulge in accessing public funds.
What is the Capital Requirements of a CIC-ND-SI
- The adjusted net worth (ANW) of the CIC-ND-SI cannot be less than 30% of the risk-weighted assets (RWA).
- In situations where the aggregate asset size is calculated, it is required that all the CIC’s within the group need to be registered as individual CIC-ND-SI, the adjusted net worth being applied individually.