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23 April 2010
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RBI brings Core Investment Companies under its regulatory framework releases draft guidelines
Background
Under the extant regulations governing Non-Banking Financial Companies (NBFC), a company having its
principal business as acquisition of shares/ stocks/ bonds/ debentures is required to obtain registration with
the Reserve Bank of India (RBI) and comply with certain conditions. Further, non-deposit taking NBFCs
with an asset size of INR 100 crore and more as per the last audited balance sheet are classified as
systemically important (NBFC-ND-SI) and are required to comply with stringent capital adequacy and
credit concentration norms.
In the past, holding companies having stake in shares/ debentures etc. of other companies for the purpose
of investment, took a view that they are not carrying on business but merely holding such securities as
investments and therefore, are not required to be registered with RBI as NBFC. In some cases, pure
holding companies approached RBI to seek exemption from NBFC registration and such cases were
considered by RBI on a case-by-case basis.
Proposed Regulatory Framework
In line with Monetary Policy Statement for FY 2010-11, RBI has issued Draft Guidelines for Core
Investment Companies 1 (CICs) i.e. companies which have their assets predominantly as investments in
shares, not for trading but for holding stakes in group companies. In view of systemic implications of
access to public funds 2 by CICs, RBI has decided to bring CICs under its regulatory framework and
proposed that all CICs having an asset size of INR 100 crore or more will be required to obtain Certificate
of Registration from RBI, even if they have been advised in the past that registration is not required.
Thus, holding companies of financial conglomerates, infrastructure groups and other industry groups are
likely to fall within the purview of CIC regulations and may be required to obtain registration with RBI.
The draft guidelines have been placed on RBI's website for public comments.
The following regulatory framework has been prescribed for CICs:

DNBS (PD) CC.No. / 03.10.001/2009-10 dated 21 April, 2010

Public funds are defined as funds raised either directly or indirectly through public deposits, Commercial Paper, debentures,
inter-corporate deposits, bank finance and other borrowings.

2010 KPMG, an Indian Partnership and a member firm of the KPMG network of independent member firms affiliated with
KPMG International Cooperative (KPMG International), a Swiss entity. All rights reserved.

Particulars

CIC
(Asset size less than INR 100 crore)

Systemically Important CIC

(CICs-ND-SI)
(Asset size of INR 100 crore or more)

Registration requirements
Registration with
RBI

Not required

Required (irrespective of whether they

were specifically exempted in the past
from registration with the RBI or not)

Time limit for

obtaining RBI
registration

Not Applicable

Existing CICs-ND-SI: Within six

months from date of the
Notification. CICs-ND-SI can
continue existing business till
disposal of their application by the
RBI.

CICs whose asset size would cross

INR 100 crores at a later date:
Within three months of crossing the
asset limit

Consequences of
non-registration

Not Applicable

Will be regarded as contravening the

provisions of Section 45IA of the RBI
Act, 1934

90 per cent of their total assets are in

investments in shares of investee
companies for holding stake in the
said investee companies

Conditions
Investments

and
-

90 per cent of the total assets are

investments in equity, debt, or loans
in group companies
Investment in equity shares of
group companies for holding stake
in these companies is not less than
60 per cent of total assets.

Embargo on trading
in shares

Cannot trade in shares except for

block sale to dilute or divest the
holding

Cannot trade in shares except for block

sale to dilute or divest the holding

Accepting or
holding Public
Deposits

Barred from accepting or holding

Public Deposits

Barred from accepting or holding

Public Deposits

Carrying out other

Financial Activities

Cannot carry on any other financial

activities 3 except investments in bank
deposits, Govt. securities, loans to
and investments in debt issuances of
group companies, or guarantees

Cannot carry on any other financial

activities3 except investments in bank
deposits, Govt. securities, loans to and
investments in debt issuances of group
companies, or guarantees issued on

Financial activities referred to in Section 45 I (c) and 45 I(f) of the RBI Act, 1934

2010 KPMG, an Indian Partnership and a member firm of the KPMG network of independent member firms affiliated with
KPMG International Cooperative (KPMG International), a Swiss entity. All rights reserved.

Particulars

CIC
(Asset size less than INR 100 crore)
issued on behalf of group companies

Systemically Important CIC

(CICs-ND-SI)
(Asset size of INR 100 crore or more)
behalf of group companies

Capital requirement

Not Applicable

Ongoing maintenance of a minimum

Capital Ratio whereby its Adjusted Net
Worth 4 (ANW) shall be at least 30
percent of its aggregate risk weighted
assets on balance sheet and risk
adjusted value of off balance sheet
items as on the date of the last audited
balance sheet.

Leverage ratio

Not Applicable

Outside liabilities 5 shall not exceed 2.5

times of its ANW calculated as on the
date of the last audited balance sheet

Exemption from :

Not Applicable

Exemption available provided all above

conditions are complied with 6 .

(i) maintenance of
statutory minimum
Net Owned Fund
(NOF); and

CICs-ND-SI which do not meet the

above conditions may approach RBIs
Regional Office in whose jurisdiction
they are registered, with an action plan
for compliance with these conditions, in
order to avail the exemption. RBI may
examine the action plan of such CICsND-SI and impose such conditions and
restrictions as it deems fit.

(ii) requirements of
Non-Banking
Financial (NonDeposit Accepting or
Holding) Companies
Prudential Norms
(Reserve Bank)
Directions, 2007
including
requirements of
capital adequacy
and exposure norms
Submission of
statutory auditors
certificate for

Not Applicable

Annually

Adjusted Net Worth have been defined in Draft regulations as Owned Fund + 50 percent of Revaluation reserve arising from
valuation of shares (if any) as per latest audited Balance sheet + 50 percent appreciation in the book value of quoted investment ()diminution in the aggregate book value of quoted investments as per latest audited Balance sheet.
5

Outside Liabilities means total liabilities other than paid up capital and reserves but including bank borrowings, all forms of
debt, obligations having characteristics of debt whether created by issue of hybrid instruments or otherwise, and value of
guarantees issued.
6

It may be interesting to note while the extant NBFC regulations provided that exemption from expsoure norms is available only
if public funds have not been accessed by the NBFC, this condition is relaxed under the Draft CIC Guidelines. Thus, CICs are
exempted from exposure norms, even when public funds are accessed.

2010 KPMG, an Indian Partnership and a member firm of the KPMG network of independent member firms affiliated with
KPMG International Cooperative (KPMG International), a Swiss entity. All rights reserved.

Particulars

CIC
(Asset size less than INR 100 crore)

Systemically Important CIC

(CICs-ND-SI)
(Asset size of INR 100 crore or more)

compliance with the

guidelines

Our Comments
Hitherto, there was uncertainty whether holding companies are governed by NBFC regulations. The Draft
CIC Guidelines provide a framework for supervision/ regulation of holding companies in India. Further,
exemption from extant NOF requirements and exposure norms applicable to NBFCs would support the
peculiar business model of CICs viz: holding stake in group companies. However, there are some areas
which require clarity from RBI before the final guidelines are issued:

CICs have not been specifically defined in the Draft CIC Guidelines. It is not clear whether holdingcum-operating companies, which do not fall within the definition of NBFC because they do not satisfy
the 50:50 financial asset/ income criteria 7 , are governed by the Draft CIC Guidelines.

While granting exemption to CICs having asset size of less than INR 100 crore, the qualifying criteria
is 90 percent investment in shares of investee companies. However, in respect of CICs-ND-SI, the
qualifying criteria is 90 percent investment in equity/ debt/ loan in group companies.

The objective of RBI appears to regulate only CICs-ND-SI primarily holding stake in investee
companies. Thus, holding companies with asset size of INR 100 crore or more and investing in nongroup companies may continue to subject to NOF requirements and exposure norms under the NBFC
regulations.

RBI has clarified that a company will be treated as an NBFC if its financial assets are more than 50 percent of its total assets
(netted off by intangible assets) and income from financial assets is more than 50 percent of the gross income. Both these tests are
required to be satisfied as the determinant factor for principal business of a company (Press Release dated April 8, 1999)

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KPMG International Cooperative (KPMG International), a Swiss entity. All rights reserved.

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