A Complete Procedure on Core Investment Company
Core Investment Companies are defined as a non-banking financial company that specializes in the business of acquisition of shares and securities and holds not less than 90 percent of its total assets in the form of investment in equity shares, preference shares, bonds, debentures, or loans in group companies.
The core investment companies that have an asset size of INR 100 crores and above are defined as systematically important core investment company. A systematically important core investment company is defined as a core investment company that fulfills below conditions –
- Companies that have an asset size of INR 100 crores, either individually or aggregate along with other investment companies in the group,
- Companies that raise or hold public funds
What are the rules and regulations of Systematically Important CICs?
Below mentioned are certain rules with regards to SI-CIC:
- The companies must be registered with RBI. They are given an exemption from the maintenance of net owned funds and exposure norms with regards to certain conditions.
- Every investment company must ensure that it maintains a minimum capital ratio where its adjusted net worth must not be less than 30% of its aggregate risk-weighted assets on the balance sheet and risk-adjusted value of off-balance sheet items as per the date of the recent audited balance sheet at the end of the financial year.
- The leverage ratio of the investment companies must be maintained at all times and must not surpass 2.5 times its Adjusted Net Worth as per the date of the last audited balance sheet as at the end of every financial year.
What the features of Core Investment Companies?
Following are certain characteristics of a core investment company –
- Core Investment Companies (CICs) are specialized Non-Banking Financial Companies (NBFCs).
- A Core Investment Company that is registered with the RBI has an asset size of above INR 100 crores.
- Their main business is the acquisition of shares and securities with certain conditions.
What is the registration process for the Core Investment Company?
Following are the steps that must be followed by individuals to register as a core investment company –
- The company must download an application form for the registration form RBI’s website.
- The form must be filled and submitted to the Regional office of the Department of Non-Banking Supervision along with certain documents as mentioned in the form.
What are the capital requirements for the Core Investment Company establishment?
- The Adjusted Net Worth of the core investment companies shall at any duration not be less than 30% of its total risk-weighted assets on the balance sheet and risk-adjusted value of off-balance sheet items as per the date of the last audited balance sheet as at the end of the financial year.
What are the provisions for Standard Assets?
- A CIC-ND-SI with total asset size of less than INR 500 crores, shall make provisions for standard assets at 0.25 percent of the outstanding, which shall not be reckoned for arriving at net NPAs. The provision towards standard assets shall not be acquired from gross advances but shall be shown separately as ‘Contingent Provisions against Standard Assets’ in the balance sheet.
What are the eligibility criteria for Core Investment Companies?
- The Adjusted Net Worth, also known as ANW of the CIC must not be less than 30% of the aggregate risk-weighted assets on the balance sheet and the risk-adjusted value of off-balance sheet items as per the date mentioned in the last audited balance sheet as at the end of the financial year. The Core Investment Companies shall continue to meet the requirement of minimum Adjusted Net Worth, post overseas investment. For this purpose, the risk weights applicable shall be as provided for in these directions.
- The level of the Net Non-Performing Assets of the Core Investment Company (CIC) must not be more than one percent of the net advances as on the date of the last audited balance sheet.
- The CIC will generally be earning profit for the last three years and its performance shall be reasonable during the period of its existence.
What are the conditions for Core Investment Companies?
- Direct investment in activities prohibited under FEMA should not be permitted.
- The entire overseas investment must not exceed 400% of the owned funds of the CIC.
- The entire overseas investment in the financial sector shall not exceed 200% of its owned funds.
- The Investment in financial sector shall be only in regulated entities abroad.
- Establishments that are set up in foreign countries or acquired from other countries shall be treated as wholly-owned subsidiaries.
- Overseas investments by CIC in the financial or non-financial sector shall be restricted to its financial commitment.
- The CIC can issue guarantees to the overseas subsidiary engaged in the non-financial activity.
- CICs must ensure that investments made overseas must not result in the creation of complicated structures. In situations in which the structure overseas requires a Non-Operating Holding Company, there shall not be more than two tiers in the structure. CICs that have more than one non-operating holding company, in their investment structure, shall report the same to the Bank for a review.
- CICs must comply with the regulations issued under FEMA, 1999 at regular intervals.
- An annual certificate from statutory auditors must be submitted by the CIC to the Regional Office where the registration takes place, certifying that it has fully complied with all the conditions specified under these guidelines for overseas investment.
Conclusion
Core Investment Companies are NBFCs which can be established by following proper rules and regulations. They have different guidelines in comparison to other types of companies. Individuals must understand various aspects of the company before applying for their registration.