New norms for core investment cos

RBI HAS EMPHASISED TRANSPARENCY, BETTER RISK MANAGEMENT AND SIMPLER STRUCTURE

MUMBAI: The Reserve Bank of India (RBI) on Thursday announced stricter guidelines for core investment companies (CICS), mandating more disclosures, better risk management and a simpler group structure.

The new guidelines were based on the recommendations of the Working Group to Review Regulatory and Supervisory Framework for CICS, headed by Tapan Ray, former secretary of the corporate affairs ministry. The report was published by RBI on November 6, 2019.

CICS are non-bank lenders holding not less than 90% of their net assets as investments in equity shares, preference shares, bonds, debentures, debt or loans in group companies. Experts have been seeking a review of CIC guidelines ever since defaults by Infrastructure Leasing and Financial Services Ltd, a large systemically important CIC.

RBI said the parent CIC in the group, or the CIC with the largest asset size, will have to form a group risk management committee (GRMC), which will report to the board of the CIC that constitutes it and must meet at least once in a quarter. It will comprise at least five members, with two independent directors. The GRMC will have to analyse material risks to which the group, its businesses and subsidiaries are exposed. Moreover, all CICS with assets of over ₹5,000 crore will have to appoint a chief risk officer with clearly specified roles and responsibilities.

To address the complexity in group structures, RBI also decided to limit the number of layers of CICS within a group, including the parent, to two. If a CIC makes any direct or indirect equity investment in another CIC, it will be deemed as a layer for the investing company, it added. While the regulation will be applicable from the date of the circular, existing entities have been given time till March 31, 2023 to reorganise their structure.