Latest Scoop on Registration of Core Investment Company

A Core Investment Company is a Non-Banking Financial Company (NBFC) that is established to carry out the business of acquisition of securities and shares and holds not less than 90 percent of its net assets in the form of shares, debentures, bonds, debts or loans in various companies. It is categorized as an NBFC by the Reserve bank of India (RBI). The asset size of these companies is Rs 100 crores. One significant aspect of the establishment of this company is its registration. Core Investment Company Registration is compulsory and must be done by individuals before starting this company.

The term ‘NBFC’ is termed as a company that is registered as per the Companies Act, 1956. One of the primary functions of NBFC is to receive deposits under a particular scheme either in a lump sum amount or in installments through contributions. This type of company is particularly known as a Residuary Non-Banking Company.

CICs are a major type of NBFC based on their nature of activities.

Features of Core Investment Company (CIC)

• These companies are allowed to accept public deposits
• The investments these companies make, in the equity shares, constitute not less than 60 % of its net assets.

Systemically Important Core Investment Company (CIC-ND-SI)

A CIC-ND-SI is a Non-Banking Financial Company, below mentioned are some essential aspects of the company,

• It consists of the asset size of Rs 100 crores and above,
• It undertakes the business of acquisition of shares and securities,
• It holds no 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 investments of such companies in the equity shares (including instruments convertible into equity shares within a duration of 10 years from the date of issue) in group companies constitute not less than 60% of its net assets,
• It does not trade its investments in shares, bonds, debentures, debt or loans in group companies except through block sale for the purpose of dilution or disinvestment,
• 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, government securities, loans to and investments in debt issuances of group companies or guarantees issued on behalf of group companies,
• They are permitted to accept public funds.

Requirements to be fulfilled by Core Investment Companies

As per the rules regarding the core investment company set up RBI, certain requirements that must be followed by these companies are –

• Core Investment Companies is required 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 remaining 10% of the net assets that the CICs can acquire outside the group are real estate or other types of fixed assets that hold some significance for running the company. These cannot be in the form of financial investments or loans in non-group companies.
• It cannot trade 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 is required to be at least 60% of the net worth of its assets.
• Core Investment Companies are not permitted to undertake any other financial activities other than the ones mentioned by RBI.
• These companies are allowed to and can issue guarantees on behalf of group companies.
• They can invest in bank deposits, money market mutual funds, liquid mutual funds, and other money market instruments, government securities, bonds and debentures of group companies.

Core Investment Company Registration Process

Core Investment Companies (CICs) with asset size of Rs 100 crores or more are treated as Systemically Important Core Investment Company (CIC-ND-SI), according to 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 obtain a Certificate of Registration.

The registration process of a core investment company is an easy to follow method that is followed by individuals who are planning to start up this company.

• Every CIC-ND-SI must apply to the Bank for grant of Certificate of Registration,
• After reaching the asset size of Rs 100 crores and officially becoming a CIC-ND-SI, CIC can apply to the Bank for a grant of Certificate of Registration within a time period of three months from the date of becoming a CIC-ND-SI.
• Moreover, CICs that are exempted from the registration requirement with the Bank shall pass a Board Resolution that they will not, in the future, accept public funds.
• On behalf of the group company, CICs are required to issue guarantees or take on other contingent liabilities. CICs must ensure the obligations before taking such liabilities.
• If the core investment companies with an asset size of above Rs 100 Crores are accepting public funds without acquiring a Certificate of Registration (CoR) from the Bank, they will hold responsible for violating the Core Investment Companies (Reserve Bank) Directions, 2016.

Capital Requirements of Core Investment Companies

• The adjusted net worth (ANW) of the CIC-ND-SI must not be less than 30% of the risk-weighted assets (RWA).
• In the situation where the aggregate asset size is calculated, it is required that all the CICs within the group must be registered as individual CIC-ND-SI, the adjusted net worth being applied individually.

The latest scoop on CIC

The Working Group Committee was established by RBI. It was constituted by RBI in order to review the regulatory and supervisory framework of the CICs in a more appropriate manner. The committee has recommended the constitution of Board Level Committees such as the Audit Committee, Nomination, and Remuneration Committee, Group Risk Management Committee for Core Investment Companies (CICs).

Last year in November RBI released certain recommendations for the core investment companies –

• The Working group suggested that step down CICs may not be allowed to invest in any other CIC while enabling them to invest freely in other group companies. Apart from this, the committee also suggested that the capital contribution by a CIC in a step-down CIC, over and above 10% of its funds, must be deducted from its adjusted net worth, as applicable to other NBFCs.
• The Working group recommends that the number of layers of CICs in a group must be restricted to two. Further, it suggested that any CIC within a group shall not invest more than a total of two layers of CICs, including itself.
• In order to strengthen the governance practices, the Working Group Committee mandates the constitution of the Board Level Committees, namely the audit committee, nomination, and remuneration committee and group risk management committee.
• Currently, CICs are not required to submit off-site returns or Statutory Auditors Certificate (SAC). However, the Working Group Committee proposed that RBI may design the offsite returns and impose it for CICs on the lines of other NBFCs. The committee further recommended the annual submission of the Statutory Auditors Certificate (SAC).
• The Working Group also suggested a periodic, onsite inspection of CICs.