Over the past few years the conceptual and practical evolution of CIC has been at the forefront of the lending sector. RBI has sharpen its Teeth to crab loopholes in Lending Regulations especially NBFCs whether registered or un-registered.
Let us try to analyse and find out the significance and basic ingredients of a CIC.
RESERVE BANK OF INDIA (RBI) the prime regulator of Lending and Financing Business in India vide Circular dated August 2010 and subsequent modification thereon introduced the concept of a CIC. The RBI had announced in the Annual Policy 2010-2011 that companies which have their assets predominantly as investments in shares for holding stake in group companies but not for trading, and also do not carry on any other financial activity, i.e., Core Investment Companies, (CICs), justifiably deserve a differential treatment in the regulatory prescription applicable to Non-Banking Financial Companies which are non deposit taking and systemically important to this extent.
Pursuant to theCore Investment Companies (Reserve Bank) Directions, 2016 , it defines CIC as :
a non-banking financial company 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:-
(i) 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;
(ii) 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 constitute not less than 60% of its net assets;
(iii) 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;
(iv) It does not carry on any other financial activity referred to in Section 45I(c) and 45I (f) of the Reserve Bank of India Act, 1934 except
(a) investment in
(i) bank deposits,
(ii) money market instruments, including money market mutual funds that make investments in debt/money market instruments with a maturity of up to 1 year.
(iii) government securities, and
(iv) bonds or debentures issued by group companies,
(b) granting of loans to group companies and
(c) issuing guarantees on behalf of group companies.
The above definition brings out certain Questionnaires in our minds , lets find out;
Q.1 Whether a CIC first has to be a registered NBFC?
Ans: By going into the definition it looks like ‘Yes’ but the answer is Not Necessarily. Any Company falling or found doing the aforesaid activities shall be construed as a CIC. If a Company falls into such category it will require to apply to RBI for CIC registration and certificate.
Q.2 Whether all NBFCs/Companies fulfilling the above criteria needs to apply to RBI to seek registration.
Ans: All NBFC/Companies fulfilling the above criteria having an asset size of Rs 100 crore or above will require to apply to RBI and not otherwise.
Q.3 Is there any other criteria need to be checked for being a CIC?
Ans: Yes , one important aspect of triggering of CIC is access of Public Funds from any source. Say your Company satisfies the above criteria mentioned in first and second para but it does not hold or access Public Fund in its books , then also the Company is outside the purview of CIC registration.
Q.4 Does the Company holding NBFC Certificate from RBI requires RE-registration as CIC with RBI ?
Ans: Yes , it has to apply to RBI for seeking CIC registration even if it has NBFC Certificate.
Q.5 Whether Scale Based Regulation of RBI applicable to CIC whom are not registered as NBFC?
Ans: It goes without saying ‘its very much applicable and furtherance to it A CIC falls into Middle Layer classification and regulations are stringent as compared to Base layer NBFC.
Q.6 Whether the Asset size of Rs 100 Crore as specified in Q.2 is considered solo or at group level?
Ans: All CICs in the group comprising asset size shall be counted.
Q.7 Is there any exemption/exception for registration as CIC?
Ans: Yes, there are always ways and way out. As per RBI guidelines if your Company fulfilling all criteria including exceeding asset size of Rs 100 Crore and above though do not access Public Funds will always be out of the purview of CIC regulations framed by RBI. Though group ASSETS of CIC need to be always checked and analysed, otherwise the violation of RBI guidelines may fall on the group Co.s.
Q.8 When does the applicability of CIC registration triggers to a Company ?
Ans: Every CIC shall apply to the Bank for grant of Certificate of Registration, irrespective of any advice in the past, issued by the RBI, to the contrary.
Every CIC shall apply to the RBI for grant of Certificate of Registration within a period of three months from the date of becoming a CIC.
Catching Remarks: For the reference of CIC definition;
Net Assets: means total assets excluding –
(i) cash and bank balances;
(ii) investment in money market instruments and money market mutual funds
(iii) advance payments of taxes; and
(iv) deferred tax payment.
In case of any queries regarding the Article or NBFC Regulations feel free to connect.
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Disclaimer: This document is prepared based on existing provisions and information. While efforts are made for accuracy, it’s not professional advice and may change. Users are expected to refer to applicable laws. I assume no responsibility for any consequences of its use, including any damages incurred.
Author- CS Niraj Kumar Jaideoka and can be contacted at [email protected]
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