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RBI’s panel suggests measures to strengthen core investment companies

The working group recommended capital contribution by CIC in a step down CIC, over and above 10%, should be deducted from its net worth.|
Nov 06, 2019, 07.05 PM IST
NEW DELHI: With an objective to strengthen core investment companies (CIC), a working group formed by the Reserve Bank of India recommended measures such as including periodical inspection of the companies and formation of board-level committees.

The working group recommended capital contribution by core investment companies (CIC) in a step down CIC, over and above 10 per cent, should be deducted from its adjusted net worth.

A core investment company is a non-banking financial company (NBFC) which carries on the business of acquisition of shares and securities and holds not less than 90 per cent of its net assets in the form of investment in equity shares, preference shares, bonds, debentures, debt or loans in group companies. Further investments in equity shares in group companies constitute not less than 60 per cent of its net assets.

“Further, step-down CICs may not be permitted to invest in any other CIC, while allowing them to invest freely in other group companies,” RBI panel said in a release.

It also added that the number of layers of CICs in a group should be restricted to two. As such, any CIC within a group shall not make an investment through more than a total of two layers of CICs, including itself.

It also proposed that every group having a CIC should have a group risk management committee.

The RBI panel also recommended onsite inspection of core investment companies may be conducted periodically.

“Annual submission of statutory auditors certificates may also be mandated,” it said.

The working group (WG) in its report also added that corporate governance guidelines are not explicitly made applicable to CICs at present. To strengthen the governance practices, the WG recommends constitution of board-level committees viz. audit committee, nomination and remuneration committee and group risk management committee.

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