Overview

A Core Investment Company (CIC) is categorized as a Non Banking Financial Company (NBFC) by the Reserve Bank of India (RBI). These companies predominately invest in shares of its own group companies for stakeholding but cannot engage in trading of these instruments or carry out any other kind of financial activity.

Categories

No core investment company can accept deposits. This is one of the core eligibility criteria of the core investment company. Asset classification criteria for CIC are:-

• Registered CIC’s with assets less than Rs. 100 crore worth follow the norms specified in the Non-Systematically Important NBFC Prudential Norms, 2015.
• For those with assets more than Rs. 100 core follows the norm as specified in Systematically Important NBFC Prudential Norms Directions, 2015.

Requirements for Approval

CIC with an asset size of Rs. 100 crores or more is considered an organically important core investment company (CIC-ND-SI) by RBI. All core investment companies are required to be registered with the Reserve Bank of India under Section 45 IA of the Reserve Bank of India Act 1934 and thus obtain a certificate of registration's

Exemptions from Registration:

• CIC ’ The property size of Rs. is less than. 100 crore is exempted from registration as per the Act & ndash; The total asset size of a core investment company is calculated by adding the individual sizes of all CICs & rsquo belonging to a particular group. The total asset size in the case was Rs. 100 million or more core investment company will have to register.
• CIC ’ 100 crores or more but not reaching public funds.

However, it is important to note here that such CIC’s that have asset size below Rs. 100 would be required to mandatorily register with RBI in case they are planning to make overseas investments in the financial sector. They also need to comply with all the requirements and conditions as applicable to registered CIC-ND-SI. However, if the particular Core Investment Company is investing overseas in the non-financial sector, it does not require to be registered with RBI.

As per the Act, all Core Investment Companies that have asset size of less than Rs. 100 crore would be required to apply for the certificate of registration within a period of 3 months from the date of achieving Rs. 100 crore in the balance sheet.

General Obligation

As per the Core Investment Companies (Reserve Bank) Directions, 2016, the following need to be fulfilled by all CICs, as per the last audited balance sheet:-

• The Core Investment Company needs to hold not less than 90% of its net assets in the form of investment in equity shares, preference shares, bonds, debentures, debt or loans in group companies. The balance 10% of Net assets that the CIC’s can hold outside the group include real estate or other types of fixed assets that are essential for running the company but cannot be financial investments or loans in non-group companies.
• It cannot trade in its investments in shares, bonds, debentures, debt or loans in group companies except through block sale with the purpose of diluting or disinvestment.
• The investment of the company in the shares of the group companies need to be at least 60% of the net worth of its assets.
• The Core Investment Company is not allowed to carry out any other financial activity other than:-
• the company can issue guarantees on behalf of group companies
• it can invest in bank deposits; money market mutual fund, liquid mutual funds, and other money market instruments; government securities; bonds and debentures of group companies;  and granting of loans to group companies.

A CIC-ND-SI that is a systematically important Core Investment Company needs to have an asset size of Rs. 100 crore and more, should raise or hold public funds as well as fulfill all the criteria stated above. For such a company, it is mandatory to be registered with the Reserve Bank of India as operating without obtaining a Certificate of Registration from the apex bank; they are viewed as violating the Core Investment Companies (Reserve Bank) Directions, 2016.

The Process of Registration

• The Core Investment Company needs to download the application form for registration from the website of RBI.
• It needs to be filled in and submitted to the Regional Office of DNBS (Department of Non-Banking Supervision) along with the supporting documents as mentioned in the form. The DNBS has to be the one under whose jurisdiction the company is registered.

The CIC's that are exempted from registration, however, need to pass a Board Resolution that they will not in the future indulge in accessing public funds.

Capital Requirements

• The adjusted net worth (ANW) of the CIC-ND-SI cannot be less than 30% of the risk-weighted assets (RWA).
• In situations where the aggregate asset size is calculated, it is required that all the CIC’s within the group need to be registered as individual CIC-ND-SI, the adjusted net worth being applied individually.

What is the meaning of the Systematic Core Investment Company

Non-Banking Financial Companies (NBFCs) have different companies under them. One such company that is formed as a Non-Banking Financial Company is a CIC. A Systematic Core Investment company is also known as a CIC-ND-SI.

• The following criteria are required for a systematic core investment company:

• An entity that has more than 100 Crore of Assets.

• Has the business of acquiring shares and securities.

• Apart from the above conditions, a systematic CIC has to satisfy additional conditions:

• 90% of net assets have to be held as equity shares, preference shares, bonds, debentures.

• Investments in equity shares in the group of companies comprise of 60% of the net assets.

• The entity cannot trade its investments in shares, bonds, debentures. However, they can trade through the form of block sales for dilution.

• Systematic CIC can accept public funds.

Is the meaning of existing CIC?

Existing Core investment companies have an asset size of lesser than 100 crores. Existing CIC s do not need to register as per the requirements of the Reserve Bank of India Act, 1934, and The Banking Regulation Act, 1949.

If there are many companies in a CIC group, do each separate company require registration as a CIC?

No. As per the requirement to satisfy CIC, the group must have an asset size of 100 Crore. The whole group of entities under the CIC would be considered as a CIC-ND-SI. They would require to be registered with the Bank.

Can a company Subsidiary's subsidiary (step down subsidiary) investment be considered for not less than 90% of its net assets?

Only direct investments in group companies would be taken to determine a 90% requirement of their net assets. All the investments must be taken from the balance sheet for determining 90% of its net assets. Any investment made by the company in its step down subsidiaries would not be taken into account for determining net assets.

Would any form of investment from a CIC company be permitted for partnerships, LLPs, and other business forms?

As per the requirements of the Companies Act 2013 and previous company law 1956, investments of CIC would only be allowed for their own group companies. Moreover, investments in any other partnerships and LLPs are not allowed by a CIC. This investment is for calculating the 90% of the net worth.

CIC-ND-SI require any form of compliance under FEMA?

Yes. Foreign Exchange Management Compliance is required for a CIC-ND-SI. They would require a No Objection Certificate (NOC) from the RBI Department of Non-Banking Supervision for any form of investment made in the financial sector. If the CIC-ND-SI wants to invest abroad, they must comply according to the rules under the FEMA (Transfer or Issue of Any Foreign Security) Amendment Regulations Act 2004.