Ans. A CIC is a Non-Banking Financial Company

(i) with asset size of ₹ 100 crore and above;

(ii) carrying on the business of acquisition of shares and securities and which satisfies the following conditions as on the date of the last audited balance sheet;

(iii) 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;

(iv) 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 constitutes not less than 60% of its net assets as mentioned in clause (iii) above;

(v) 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;

(vi) it does not carry on any other financial activity referred to in Section 45I(c) and 45I(f) of the RBI act, 1934 except 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, loans to and investments in debt issuances of group companies or guarantees issued on behalf of group companies;

(vii) it accepts public funds.

Ans: CICs (a) with an asset size of less than ₹100 crore, irrespective of whether accessing public funds or not and (b) with an asset size of ₹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  para 6 of Master Direction DoR(NBFC).PD.003/03.10.119/2016-17, and are termed as ‘Unregistered CICs’. An Unregistered CIC as per the aforementioned criteria is not required to submit any application to continue as Unregistered CIC. Such Unregistered CICs are exempted from the regulation of Reserve Bank. However, if they wish to make overseas investments in the financial sector, they are required to hold a Certificate of Registration from the Reserve Bank and have a prior approval of the Bank as required in para 34 of the Master Direction.

Ans: Net assets have been defined in Master Direction DoR(NBFC).PD.003/03.10.119/2016-17 dated August 25, 2016 (para3(1) (xviii)) specifically for the purpose of defining a CIC. As such they will only include the items specifically mentioned therein, irrespective of whether any of these qualify as operating assets or not.

The 10% of net assets which CIC’s can hold outside the group may include real estate or other fixed assets which are required for effective functioning of a company but should not include other financial investments/loans in non-group companies.

Ans: Public funds are not the same as public deposits. Public funds include public deposits, inter-corporate deposits, bank finance and all funds received whether directly or indirectly from outside sources such as funds raised by issue of Commercial Papers, debentures etc. Indirect receipt of public funds means funds received not directly but through associates and group entities which have access to public funds.

Even though public funds include public deposits as clarified above, it may be noted that CICs cannot accept public deposits. That is one of the eligibility criteria to be  classified as a CIC. It may further be clarified that no NBFC can accept public deposits without specific permission of the Bank even if it holds a Certificate of Registration (CoR) from the Bank.

Ans: Yes, CICs may be required to issue guarantees or take on other contingent liabilities on behalf of their group entities. Guarantees per se do not fall under the definition of public funds. However, it is possible that CICs which do not accept public funds take recourse to public funds if and when the guarantee devolves. Hence, before doing so, CICs must ensure that they can meet the obligation there under, as and when they arise. In particular, CICs which are exempt from registration requirement must be in a position to do so without recourse to public funds in the event the liability devolves. If unregistered CICs with asset size above ₹ 100 crore access public funds without obtaining a Certificate of Registration (CoR) from RBI, they will be seen as violating Master Direction DoR(NBFC).PD.003/03.10.119/2016-17 dated August 25, 2016.

Ans: For the purposes of determining whether a company is a CIC, ‘companies in the group’ have been exhaustively defined in para 3 (1) (v) of   of Master Direction DoR(NBFC).PD.003/03.10.119/2016-17 dated August 25, 2016 as “an arrangement involving two or more entities related to each other through any of the following relationships: Subsidiary – parent (defined in terms of AS 21), Joint venture (defined in terms of AS 27), Associate (defined in terms of AS 23), Promoter–promotee [as provided in the SEBI (Acquisition of Shares and Takeover) Regulations, 1997] for listed companies, a related party (defined in terms of AS 18), common brand name, and investment in equity shares of 20 percent and above.” 

Ans: LLPs and Partnerships are not companies as per Section 3 of Companies Act 2013. Hence, they cannot be included in the definition of Group Company.

Only investments in companies registered under Section 3 of the Companies Act 2013 would be regarded as investments in Group companies for the purpose of calculating 90% investment in Group companies. Moreover, in view of the loose structure and regulatory framework of LLPs/ Partnerships, CICs are prohibited from contributing capital to any partnership firm or to be partners in partnership firms including LLPs

Ans: All direct investments in group companies, as appearing in the CICs balance sheet will be taken into account for this purpose. Investments made by subsidiaries in step down subsidiaries or other entities will not be taken into account for computing 90 percent of net assets.