The RBI Committee was formed under former Corporate Affairs Secretary, Mr. Tapan Ray to suggest a new regulatory and supervisory framework in light of the bust up of IL&FS in 2018. IL&FS was declared insolvent in September 2018 after it failed to honour its debt which was distributed among its 347 group companies. The complex nature of IL&FS and the risk it posed to the financial system has led to these new regulations.
The amendments in the CIC Guidelines are summarised below:
Change in nomenclature: A Systemically Important Core Investment Company will henceforth be termed as a Core Investment Company.
Fit and Proper Criteria: Set up a framework for assessment of directors on a continuing basis to monitor their ‘fit and proper status’ and periodically furnish relevant information to RBI.
Website of the CIC: Maintain a functional website with annual report, corporate governance report, management discussion and analysis, along with adequacy of internal controls.
Consolidated Financial Statements: Prepare financial statements in line with additional disclosure requirements to include, inter alia, investment in other CICs, information pertaining to group entities that typically do not get covered under consolidation and total exposure of CICs towards non-financial businesses.
Indian Accounting Standards: CICs implementing Indian Accounting Standards are required to adhere to the circular dated March 13, 2020 on Implementation of Indian Accounting Standards.
Group Risk Management Committee: Further, any parent CIC or CIC with the largest asset size in a group, where the parent CIC is not identifiable, will have to mandatorily constitute ‘Group Risk Management Committee’ (“GRMC), comprising executive members and independent directors with suitable experience in risk management. To ensure compliance with this, it will now be mandatory for CICs to have at least two independent directors, whether or not they are listed public companies or meet the thresholds prescribed under Section 149 of the Companies Act, 2013.
Group Risk Officer: All CICs with asset size of over INR 5,000 crore will also have to adhere to guidelines on chief risk officer applicable to certain NBFCs.
Adjusted Net Worth: While computing Adjusted Net Worth (ANW), the amount representing any direct or indirect capital contribution made by one CIC in another CIC, to the extent such amount exceeds 10% of Owned Funds of the investing CIC, shall be deducted. Further, in cases where the investment by a CIC in another CIC is already in excess of 10 percent as on August 13, 2020, the CIC need not deduct the excess investment as on August 13, 2020 from owned funds for computation of its ANW till March 31, 2023.
Restriction on number of layers: The restriction on the number of layers of CICs within a group to two (including indirect holding of parent/investing CIC in another CIC). The existing entities are to reorganise their business structure and adhere to this guideline latest by March 31 2023.
Investment Opportunity: CICs are allowed to invest in money market instruments, including mutual funds which make investments in money market instruments/debt instruments with a maturity of up to 1 year.
No Registration: Further, it shall be noted that the following CICs are not required to register with the Bank under Section 45IA of the RBI Act, 1934:
Membership of Credit Information Companies: Obtain membership of credit information companies and submit credit information.