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RBI Tightens Norms for Core Investment Companies; Formation of Group Risk Management Committee Mandated

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RBI tightens norms for core investment companiesOn August 13, 2020, the Reserve Bank of India (RBI) has revised the guidelines applicable for Core Investment Companies (CICs) on the basis of the recommendations of the Working Group (WG) to Review the Regulatory and Supervisory Framework for Core Investment Companies (CICs), constituted under the Chairmanship of Tapan Ray, former Secretary, Ministry of Corporate Affairs (MCA). The report by the WG was published by RBI on November 6, 2019.

  • In this regard, RBI has made the guidelines stricter for CICs by mandating more disclosures, better risk management and a simpler group structure w.e.f. August 13, 2020. The existing entities have been given time till 31 March 2023 to reorganize their business structure.

Key Guidelines:

–CICs with assets of over Rs 5,000 crore will have to appoint a chief risk officer (CRO).

–CIC in the group, or the CIC with the largest asset size, will have to form a group risk management committee (GRMC), comprising of at least five members, with two independent directors.

–While computing Adjusted Net Worth (ANW), the amount representing any direct or indirect capital contribution made by one CIC in another CIC, which exceeds 10% of owned funds of the investing CIC, shall be deducted. 

–It has been decided to limit the number of layers of CICs within a group, including the parent, to two in order to make group structures simpler.

–CICs are also directed to maintain a functional website containing basic information about the entity and the group viz. annual reports, corporate governance report, management discussion and analysis.

–These firms are mandated to prepare a consolidated financial statement as per the provisions of the Companies Act, 2013.

What are CICs?

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.

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About Reserve Bank of India (RBI):
Headquarters– Mumbai, Maharashtra
Formation– 1 April 1935
Governor– Shaktikanta Das
Deputy Governors– 4 (Bibhu Prasad Kanungo, Mahesh Kumar Jain, Michael Debabrata Patra, one is yet to be appointed).