Core Investment Companies, (CIC) are those 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. These companies a minimum 90% of their assets in the group concerns either in the form of equity, preference shares or convertibles bonds or loans. Further the component of equity holdings should not be less than 60% of their assets.
RBI has now recognized that such CICs justifiably deserve a differential treatment in the regulatory prescription applicable to Non-Banking Financial Companies which are non deposit taking and systemically important. It is now decided by RBI that only those CICs having an asset size of Rs.100 crore and above would be treated as systemically important core investment companies. Systemically important core Investment Company means a Core Investment Company fulfilling both the following conditions:
Having total assets of not less than Rs.100 crore, either individually or in aggregate along with other Core Investment Companies in the Group;
Raises or holds public funds;
The rules covering Systemically important CICs are as under:
They would require registration with the Reserve Bank and would be given exemption from maintenance of net owned fund and exposure norms subject to certain conditions.
Capital Requirements: Every CIC-ND-SI shall ensure that at all times it maintains a minimum Capital Ratio whereby its Adjusted Net Worth shall not be less than 30% of its aggregate risk weighted assets on balance sheet and risk adjusted value of off-balance sheet items as an the date of the last audited balance sheet as at the end of the financial year.
Leverage Ratio: Every CIC-ND-SI shall ensure that its outside liabilities at all times shall not exceed 2.5 times its Adjusted Net Worth as on the date of the last audited balance sheet as at the end of the financial year.
Exemptions: A CIC-ND-SI which adheres to the requirements regarding capital requirements and leverage ratio as specified above, may to the extent necessary, be exempted from compliance with:-
maintenance of statutory minimum Net Owned Fund (NoF) and
requirements of "Non-Banking Financial (Non-Deposit Accepting or holding) Companies Prudential Norms (Reserve Bank) Directions, 2007" including requirements of capital adequacy and exposure norms.
1. Adjusted net worth means the aggregate, as appearing in the last audited balance sheet as at the end of the financial year, of Owned Funds as defined in Non Banking Financial (Non Deposit Accepting or Holding) Companies Prudential Norms (Reserve Bank) Directions, 2007 and 45% of the amount standing to credit of Revaluation Reserve arising from revaluation of investments in quoted investments, if any,
i) increased by :-
50% of the unrealized appreciation in the book value of quoted investments as at the date of the last audited balance sheet as at the end of the financial year (such appreciation being calculated, as the excess of the aggregate market value of such investments over the book value of such investments); and
the increase if any, in the equity share capital since the date of the last audited balance sheet.
ii) reduced by :-
the amount of diminution in the aggregate book value of quoted investments (such diminution being calculated as the excess of the book value of such investments over the aggregate market value of such investments ) and the reduction, if any, in the equity share capital since the date of the last audited balance sheet.
(2) Market Value of Quoted Investments means:
the average of the highs and lows of the quoted prices of the investments, on a recognized stock exchange where the investment is most actively traded, during the period of 26 weeks immediately preceding the end of the financial year at which date the last audited balance sheet is available.
(3) Outside Liabilities means:
total liabilities as appearing on the liabilities side of the balance sheet excluding 'paid up capital' and 'reserves and surplus' but including all forms of debt and obligations having the characteristics of debt whether created by issue of hybrid instruments or otherwise and value of guarantees issued whether appearing on the balance sheet or not.
(4) Total Assets means:
total assets as appearing on the assets side of the balance sheet but excluding :-