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Core Investment Companies

Core Investment Companies (CICs)

21. In the definition of public funds, what do the term “indirect receipt of public funds” mean? +

Ans: Indirect receipt of public funds means funds received not directly but through associates and group entities which have access to public funds.

22. Can CICs issue guarantees and will this be considered part of definition of public funds? +

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 Rs. 100 crore access public funds without obtaining a Certificate of Registration (CoR) from RBI, they will be seen as violating Core Investment Companies (Reserve Bank) Directions, 2011 dated January 05, 2011.

23. What is a Group company? +

Ans: For the purposes of determining whether a company is a CIC/CIC-ND-SI, ‘companies in the group’ have been exhaustively defined in para 3(1) b of Notification No. DNBS. (PD) 219/CGM(US)-2011 dated January 5, 2011 as “an arrangement involving two or more entities related to each other through any of the following relationships, viz.,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% and above).”

24. How can a company register as a CIC-ND-SI? +

Ans: The application form for CICs-ND-SI available on the Bank’s website can be downloaded and filled in and submitted to the Regional Office of the DNBS in whose jurisdiction the Company is registered along with necessary supporting documents mentioned in the application form.

25. A CIC-ND-SI should have 90% investment within the group, and in terms of current exposure norms, NBFCs-ND-SI are permitted only 40% of both lending and investment within any group. Therefore, no NBFC as it stands, would be able to become a CIC without breaching the NOF, CRAR or Concentration Norms, since its entire business is in a subsidiary. However, an NBFC may voluntarily seek to become a CIC-ND-SI since it brings clarity to the holding structure in their organization. How would this issue be resolved? +

Ans: The NBFC would have to apply to RBI with full details of the plan and exemptions could be considered on a selective basis on the merits of the case.

26. A company has investments in Group companies but does not meet the criteria of principal business as defined in terms of asset-income criteria to be as an NBFC. Can the company still be registered as a CIC or does it need to first register as an NBFC? +

Ans: CICs need not meet the principal business criteria for NBFCs.

27. If a company is a CIC but does not exactly meet the criteria specified, does the company need to register as an NBFC? +

Ans: A holding company not meeting the criteria for a CIC laid down in para 2 of Notification No DNBS. (PD) 219/CGM(US)-2011 dated January 5, 2011 would require to register as an NBFC. However, if such company wishes to register as CIC-ND-SI/ be exempted as CIC, it would have to apply to RBI with an action plan achievable within the specific period to reorganize its business as CIC. If it is not able to do so, it would need to comply with NBFC requirements and prudential norms.

28. Whether a Holding Company which is not able to comply with the CIC criteria (all four conditions), would still need to comply with NBFC requirements and prudential norms even in the event that it is not satisfying the asset-income criteria. (For example: the holding company owns 60 per cent equity in another group company and is not meeting other three conditions Therefore, it does not qualify as a CIC. Further, the income from financial assets is also less than 50 per cent of total income. Whether such a company would require compliance with NBFC norms). +

Ans: No, since the Company is not fulfilling the Principal Business Criteria (asset-income pattern) of an NBFC i.e. more than 50 % of its total assets should be financial assets and the income derived from these assets should be more than 50% of the gross income, it is not required to register as an NBFC under Section 45 IA of the RBI Act, 1934. However it should register itself as an NBFC as soon as it fulfills the criteria of an NBFC and comply with the NBFC norms.

29. A group would like to set up a CIC-ND-SI in the group to rationalize the set up. However, no company can commence the business of NBFI without COR from RBI. Therefore the proposed company would have to apply for COR before transferring shares from different companies to the CIC-ND-SI. But at that time the company would not be eligible in terms of the requirements, as it would not have 90% of net assets as investment in group companies. What should the company do? +

Ans: The company would have to apply for COR to RBI, giving a business plan within a prescribed time period of one year in which it would achieve CIC-ND-SI status. In case the company is unable to do so, the exemptions would not apply and the company would have to comply with NBFC capital adequacy and exposure norms.

30. Whether CICs that are exempt from registration either because they have an asset size of less than Rs 100 crore or are not accessing public funds are required to register as NBFCs? +

Ans: CICs that (a) have an asset size of less than Rs.100 crore irrespective of whether they are accessing public funds or not and (b) have an asset size of Rs. 100 crore and above and are not accessing public funds have been exempt from registration 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. Thus, they are not required to register with the Bank at all. As this is an exemption given under Section 45NC of the RBI Act, 1934, they are not required to approach the Bank at all.

31. Would a similar benefit apply to NBFCs i.e. would NBFCs with an asset size of less than Rs 100 crore and not accessing public funds be exempted from registration with the Bank? +

Ans: No, this exemption is specifically given to CICs only. NBFCs other than CICs are not covered by this or any other aspect of the CIC Directions and would have to register with the Bank and comply with all applicable Directions of the Bank as issued from time to time.

32. Should Net assets include operating assets? +

Ans: Net assets have been defined in Notification No. DNBS.(PD) 219/CGM(US)-2011 dated January 05, 2011 (para3(1)e) 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.

33. Definition of Group Companies should include LLPs and Partnerships in the Group? +

Ans: Neither LLPs nor Partnerships are companies and hence have been deliberately excluded from the definition of Group Company. Further, in view of the loose structure and regulatory framework for these entities, it is felt that they should not be included in the definition.

34. While instruments that are compulsorily convertible into equity shares within a period not exceeding 10 years from the date of issue are excluded from Outside Liabilities, in terms of the Companies Act such instruments are excluded from the definition of ‘public deposit’ if they are convertible with a period of 20 years? +

Ans: The period of 10 years was specified as a prudential measure not necessarily in alignment with a provision of the Companies Act. Moreover, the issue here is not public deposits but Outside Liabilities.

35. Unlike other NBFCs, can CICs ND-SI (a) no longer make overseas investment or (b) raise ECB or (c) obtain bank finance for acquisition of shares? +

Ans: The Directions on CIC-ND-SIs have not restricted them from making overseas investment. Such investment will be governed by the provisions of Chapter VII of Master Direction-Core Investment Companies (Reserve Bank) Directions, 2016. Similarly, presently CIC-ND-SIs can raise funds through ECB. The same would be governed by the instructions contained in the ECB Policy issued by Foreign Exchange Department of the Reserve Bank. Lending to NBFCs/ CICs by banks will be governed by the provisions as applicable to banks and specifically contained in the instructions on ‘bank finance to NBFCs’ issued by Department of Banking Regulation of the Reserve Bank.

36. If one of the small CICs in a group does not access public funds why should it register based on the condition of aggregate asset size? +

Ans: As already clarified in the FAQs, a CIC that does not access public funds is exempt from registration irrespective of having other CICs in the Group that access public funds. Illustratively, if A is a CIC and B and C are also CICs and Group Companies of A provided A does not access any form of public funds including any funds from any Group Company including B and C, it would not require to register as a CIC. If A, B and C do not access public funds in any form none of them would be required to register as a CIC.

37. Will adjusted net worth of all the CICs in the Group also be aggregated for compliance purposes? +

Ans: Adjusted net worth (ANW) is a concept akin to capital requirement wherein the ANW should not be less than 30% of the risk weighted assets (RWA). In cases where asset size is aggregated, all the CICs within the group will be registered as CIC-ND-SI ANW will be applicable individually.

38. There is an apparent anomaly in the definition of ‘public funds’ as the moment public deposits is included in the definition of ‘public funds’ and CICs will be deemed to have raised public deposits and will therefore become an NBFC subject to exposure norms? +

Ans: Even though public funds include public deposits in the general course, it may be noted that CICs cannot accept public deposits. It may further be reiterated that no NBFC can accept public deposits without specific permission of the Bank even if it holds a CoR from the Bank.

39. Would para 7 of the revised regulatory framework for NBFCs issued vide CC DNBR (PD) CC.No. 002/03.10.001/ 2014-15 dated November 10, 2014 on multiple NBFCs in a group also apply to Core Investment Companies (CICs) in the group?

Ans: No. CICs in a group would not be considered for aggregating the assets of multiple NBFCs in a group under the circular. Instructions contained in the Core Investment Companies (Reserve Bank) Directions, 2011 dated January 5, 2011 shall be applicable to CICs in this regard.

40. What are the asset classification norms applicable to CICs? +

Ans: Registered CICs with assets < Rs.500 crore shall follow the asset classification norm as specified in the Non-Systemically Important Non-Banking Financial (Non-Deposit accepting or holding) Companies Prudential Norms (Reserve Bank) Directions, 2015 and those with assets >= Rs.500 crore shall follow the asset classification norm applicable to NBFCs with assets > = Rs. 500 crore as specified in the Systemically Important Non-Banking Financial (Non-Deposit accepting or holding) Companies Prudential Norms (Reserve Bank) Directions, 2015.