Backaround:- The Reserve Bank of India Act, 1934 (RBI Act) requires a Non-banking Financial Company (NBFC) undertaking inter-alia, the business of acquisition of shares, stock, bonds, debentures or other marketable securities to obtain a Certificate of Registration as a NBFC. Such entities are regarded as Investment Companies by the Reserve Bank of India (RBI) and regulated as such.

There has historically been a lack of clarity amongst investment holding companies (i.e. companies that serve as promoter holding companies for the purpose of holding group company shares) on the applicability of the RBI Act and the NBFC directions issued there under. Earlier attempts to seek a formal clarification from the RBI have yielded a mixed response; while some RBI offices have been granting exemptions from registration, some have directed the applicants to pursue registration.

The RBI, for effective monitoring of the financial services sector, has now decided to introduce a regulatory framework for Core Investment Companies (CICs) which should address the present anomaly and provide a framework for setting-up such companies in future. The proposal was included in the RBI’s Annual Policy Statement for the year 2010-11.

This Alert summarizes the proposed regulatory framework for CICs, which at present is open for comments from general public.


1.       Regulatory framework for Core Investment Companies

1.1      CICs having asset size of less than

Rs 1 billion would be exempted from the requirement of registration with RBI as a NBFC. The exemption is subject to a condition that 90% of the total assets of the CIC should be invested in shares of investee companies for the purpose of holding stake in such investee companies.

1.2     CICs having an asset size of Rs 1 billion or more will be considered as Systemically Important Core Investment Companies (CICs-ND-S1). CICs-ND-SI would be required to obtain registration from the RBI as a NBFC even if they have been advised in the past that registration was not required.

1.3     CICs-ND-SI would need to ensure that 90% of its total assets should be in investments in equity, debt, or loans in group companies, provided that the investment in equity shares of group companies (for the purpose of holding stake) is not less than 60% of the total assets.

1.4     CICs (including CICs-ND-S1) would need to comply with the following conditions:

–         CICs should not trade in shares except for block sale to dilute or divest their holding;

–         CICs should not accept or hold public deposits; and

–         CICs should not undertake any other financial activities specified under Section 451(c) and 451(f) of the RBI Act, except investments in bank deposits, government securities, loans to/ investments in debt issuances of group companies, or guarantees issued on behalf of group companies.

1.5      CICs-ND-SI would additionally need to maintain minimum capital ratio whereby the adjusted net worth (defined) shall not be less than 30% of its aggregate risk weighted assets on and off balance sheet. Further the outside liabilities (defined) of CICs-ND-SI shall not exceed 2.5 times of the adjusted net worth as at the last audited balance sheet date.

1.6      CICs-ND-SI fulfilling the conditions summarized in paragraphs 1.1 to 1.5 above may be exempted from:

– maintenance of statutory minimum Net Owned Fund of Rs 20 million; and

-compliance with the requirements of Non-banking Financial (Non-Deposit Accepting or Holding) Companies Prudential Norms (Reserve Bank) Directions, 2007 including capital adequacy and exposure norms (although it would need to comply with the capital  requirements described in paragraph 1.5 above).

1.7      CICs-ND-SI which do not meet the requirements discussed in paragraphs 1.1 to 1.5 above may approach the Regional Office of the RBI, with an action plan for compliance with these conditions, in order to avail the exemptions stated in paragraph 1.6 above. RBI may examine the action plan of such CICs-ND-SI and impose such conditions and restrictions as it deems fit.

1.8 All CICs-ND-SI would need to submit an annual certificate from their statutory auditors regarding compliance with the above guidelines.

2. Transition to the new framework

2.1      All CICs-ND-SI irrespective of whether they were specifically exempted in the past from registration with the RBI or not, should apply to the RBI for obtaining registration as a NBFC within a period of six months. Once the application is made, the CICs-ND-SI may continue to carry on the existing business till the disposal of the application by RBI.

2.2        CICs-ND-SI which fail to apply within the stipulated period of six months will be considered as contravening the provisions of the RBI Act.

2.3      CICs having asset size of less than Rs 1 billion would be reckoned as CICs-ND-SI once their asset size crosses Rs 1 billion. Consequently, such CICs-ND-SI would need to obtain RBI registration as a NBFC within three months of crossing the aforesaid limit.


The draft regulatory framework once notified should provide relief to CICs having total assets of less than Rs 1 billion from the requirement to obtain RBI registration as a NBFC. On the other hand, business conglomerates having holding companies (with total assets of Rs 1 billion or more) for making strategic investments in group companies in the form of equity, debt, or loans, may have to review their capital and funding structure to confirm compliance with the new framework.

Extract from RBI RBI’s Annual Policy Statement for the year 2010-11 related to Core Investment Companies (CICs)

VI. Institutional Developments

Non-Banking Financial Companies

Core Investment Companies (CICs): Regulatory Framework

111.    The regulatory framework for NBFCs has evolved in the recent past with particular focus on inter-connectedness and systemic risk. Under this approach, access to public funds has been perceived as a systemic issue necessitating close regulation and monitoring of NBFCs, including systemically important non- deposit taking NBFCs (NBFCs-ND-SI). However, companies which have their assets predominantly as investments in shares not for trading but for holding stakes in group companies 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 NBFCs-ND-SI. In order to rationalise the policy approach for CICs, and based on feedback received from such companies, it is proposed to:

  • treat CICs having an asset size of Rs.100 crore and above as systemically important core investment companies. Such companies will be required to register with the Reserve Bank.

112.    The CICs fulfilling minimum capital and leverage criteria will be given exemption from maintenance of net owned fund and exposure norms applicable to NBFCs-ND-SI. They would be required to submit annual certificate from their statutory auditors regarding compliance with the prescribed norms. Draft guidelines will be placed on the Reserve Bank’s website by April 30, 2010 for public comments.

Securitisation Companies/Reconstruction Companies set up under the SARFAESI Act, 2002: Changes in Regulations

113.    The guidelines and instructions issued to the Securitisation Companies/ Reconstruction Companies (SCs/RCs) have been reviewed by the Reserve Bank in consultation with these companies. Accordingly, it is proposed to make the following modifications to the guidelines:

  • SCs/RCs can acquire the assets either in their own books or directly in the books of the trusts set up by them.
  • The period for realisation of assets acquired by SCs/RCs can be extended from five years to eight years by their Boards of Directors, subject to certain conditions. Asset/Security Receipts (SRs), which remain unresolved/not redeemed as at the end of five years or eight years, as the case may be, will henceforth be treated as loss assets.
  • It will be mandatory for SCs/RCs to invest an amount not less than 5 per cent of each class of SRs issued under a particular scheme and continue to hold the investments till the time all the SRs issued under that class are redeemed completely.
  • With a view to bringing transparency and market discipline in the functioning of SCs/RCs, additional disclosures relating to assets realised during the year, value of financial assets unresolved as at the end of the year, value of SRs pending redemption, among others, are being prescribed.

114.    Detailed guidelines will be issued by April 30, 2010.

  1. RBI Annual Policy Statement for the Year 2010-11

  2. RBI Proposal to introduce a new regulatory framework for NBFC which are Core Investment Companies

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September 2021