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FILE PHOTO: A logo of Reserve Bank of India (RBI) (REUTERS)
FILE PHOTO: A logo of Reserve Bank of India (RBI) (REUTERS)

RBI revises norms for core investment cos

  • RBI says the parent CIC in a group will have to form a committee to analyse risks to which the group is exposed
  • RBI mandates more disclosures, better risk management and a simpler structure for CICs

MUMBAI : The Reserve Bank of India (RBI) on Thursday announced stricter guidelines for core investment companies (CICs), mandating more disclosures, better risk management and a simpler group structure.

The new guidelines were based on the recommendations of the Working Group to Review Regulatory and Supervisory Framework for CICs, headed by Tapan Ray, former secretary of the corporate affairs ministry. The report was published by RBI on 6 November 2019.

CICs are non-bank lenders holding not less than 90% of their net assets as investments in equity shares, preference shares, bonds, debentures, debt or loans in group companies. Experts have been seeking a review of CIC guidelines ever since defaults by Infrastructure Leasing and Financial Services Ltd, a large systemically important CIC.

RBI said the parent CIC in the group, or the CIC with the largest asset size, will have to form a group risk management committee (GRMC), which will report to the board of the CIC that constitutes it and must meet at least once in a quarter. It will comprise at least five members, with two independent directors.

According to the revised guidelines, the GRMC will have to analyze material risks to which the group, its businesses and subsidiaries are exposed. “It must discuss all risk strategies, both at the aggregated level and by type of risk, and make recommendations to the board in accordance with the group’s overall risk appetite," RBI said.

Moreover, all CICs with assets of over 5,000 crore will have to appoint a chief risk officer with clearly specified roles and responsibilities.

To address the complexity in group structures, the central bank also decided to limit the number of layers of CICs within a group, including the parent, to two. If a CIC makes any direct or indirect equity investment in another CIC, it will be deemed as a layer for the investing company, it added.

While the regulation will be applicable from the date of the circular, existing entities have been given time till 31 March 2023 to reorganize their business structure.

RBI also directed CICs to maintain a functional website containing basic information about the entity and the group. The website should also have annual reports, corporate governance report, management discussion and analysis.

Core investment firms are mandated to prepare a consolidated financial statement as per the provisions of the Companies Act, 2013, to provide a clear view of the financials of the group as a whole.

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