The Reserve Bank of India (“RBI”) has modified the regulatory landscape applicable to core investment companies (“CICs”), as per its circular dated August 13, 2020 (“Revised Framework”), in order to ensure stability of the financial system and address systemic risks posed by inter-connectedness of CICs and their group companies. In contrast to the light-touch regulation issued exactly a decade ago on August 12, 2010, the Revised Framework imposes far more stricter norms.

In furtherance to its announcement in the Statement on Development and Regulatory Policies issued on June 6, 2019, along with the Second Bi-Monthly Monetary Policy for the year 2019-20, the RBI constituted a working group under the chairmanship of Mr. Tapan Ray (non-executive chairman, Central Bank of India and former secretary, Ministry of Corporate Affairs) (“Working Group”) to review the regulatory and supervisory framework applicable to CICs. The Working Group issued its report in November 2019 and the Revised Framework has now been issued based on the recommendations of the Working Group.

Key Takeaways of the Revised Framework

Increase in supervision: The main thrust of the recommendations in the Working Group report and now the Revised Framework, has been to increase oversight over CICs and ensure adherence to good corporate governance. To this end, all systemically important CICs[1] will now be required to:

  • Set up a framework for assessment of directors on a continuing basis to monitor their ‘fit and proper status’ and periodically furnish relevant information to RBI, as applicable to systemically important non-deposit taking non-banking financial companies (“NBFC-ND-SI”) and deposit taking non-banking financial companies (“NBFC-D”) registered with the RBI.
  • Further, any parent CIC or CIC with the largest asset size in a group, where the parent CIC is not identifiable, will have to mandatorily constitute ‘Group Risk Management Committee’ (“GRMC”), comprising executive members and independent directors with suitable experience in risk management. GRMC will primarily have oversight over the group’s conflict of interest issues, corporate governance framework, leverage and internal controls and its overall risk appetite. To ensure compliance with this, it will now be mandatory for CICs to have at least two independent directors, whether or not they are listed public companies or meet the thresholds prescribed under Section 149 of the Companies Act, 2013 (“Companies Act”).
  • Additionally, all CICs with asset size of over INR 5,000 crore will also have to adhere to guidelines on chief risk officer applicable to certain NBFCs.

Enhanced disclosure standards: Further, as a corollary of the above and to ensure better transparency, CICs will have to

  • Prepare financial statements in line with additional disclosure requirements to include, inter alia, investment in other CICs, information pertaining to group entities that typically do not get covered under consolidation and total exposure of CICs towards non-financial businesses.

Given that the scope of ‘group companies’ is fairly broad and includes entities such as associate companies or companies with common brand name, etc., it is likely that the relevant CIC may not have any oversight over the operations of such entities and compliance with such disclosure requirement may be operationally cumbersome. Moreover, the recommendations made by the Working Group envisaged that the consolidation of group companies would extend in respect of entities in which CICs have investment exposure. Absence of an equivalent provision in the Revised Framework lends ambiguity to the extent of this disclosure requirement and further clarity may be required on whether the disclosure needs to extend to all group companies that fall within the prescribed definition. Perhaps, the transition time of two years, as was recommended by the Working Group, would have been helpful to mitigate some of these challenges that CICs are likely to face for closure of accounts for this financial year.

  • Maintain a functional website with annual report, corporate governance report, management discussion and analysis, along with adequacy of internal controls.
  • Obtain membership of credit information companies and submit credit information. Given the nature of a CIC’s operations and lack of customer/borrower interface, this requirement is surprising and does raise questions about the need for such reporting, especially since the Working Group report did not include any recommendations in this regard.

Restriction on Layers of CICs: One of the most important changes that has been introduced is the restriction on the number of layers of CICs within a group to two (including indirect holding of parent/investing CIC in another CIC). This restriction, along with the deduction of capital contribution made in excess of 10% of its owned funds from the adjusted net worth (“ANW”) for March 2023 and onwards, is aimed towards curbing the contagion risk of excessive leveraging tendencies at a group level and complex group structures.

Given that the Revised Framework envisages this restriction, irrespective of the extent of direct or indirect holding/ control exercised by one CIC in another, any quantum of investment made by a CIC, even as an investment or treasury activity for deployment of funds, is likely to be treated as layering. This one size fits all approach may impact genuine businesses and lead to additional expenses (in an already struggling economy). This requirement could have perhaps been introduced with certain thresholds, and post review of adherence to enhanced supervision and disclosure norms. Further, the significant beneficial ownership framework prescribed under the Companies Act, would have in any event helped streamline transparency issues in case of opaque/ complex structures.

Clarification of other financial activity: RBI has now permitted CICs to invest in money market instruments, including mutual funds, which make investments in money market instruments with a maturity of up to one year, which will help enhance liquidity.

Separately, it is interesting to note that the Working Group had recommended that CICs should adapt to higher standards of corporate governance, such as those applicable to listed companies, NBFC-ND-SI or NBFC-D. Not only did they recommend higher strength of independent directors on the boards of CICs, but also emphasised that removal of such directors should also be subject to RBI approval. Further, in addition to GRMC being a board level committee, the Working Group had recommended that CICs mandatorily constitute audit and nomination committees with their remit of supervision and oversight being clearly delineated. Further restrictions were also contemplated in connection with the appointment of nominee directors on the board of downstream unlisted entities by the relevant CICs.

However, the Revised Framework has taken a more pragmatic approach. It envisages CICs to continue to ensure compliance with corporate governance norms as set out under the Companies Act. Certain additional compliances (viz., off-site returns, including monthly reporting of leverage to RBI, disclosure of material events pertaining to its subsidiaries) suggested by the Working Group have also not found place in the final framework.


As stated above, some of the recommendations of the Working Group did envisage more onerous requirements being imposed on CICs. Accordingly, the balanced approach adopted by the RBI between risk mitigation and excessive regulation is a welcome move.

That being said, although existing entities have been given time till end of financial year 2023 to re-organise their group structures (which will lead to increased M&A activity), the impact of the geo-political instability and weakening global trade prospectus in the wake of the pandemic, is yet to be fully realised. It remains to be seen whether any long-lasting effects of the same will have an inter-play with the impending business re-organisations, resulting from the requirements of the Revised Framework. Also, the change in nomenclature of CICs and ‘unregistered CICs’ may also cause some ambiguity in interpreting the applicability of the revised framework; a specific clarification that ‘unregistered CICs’ are not subject to any regulatory oversight of the RBI would have certainly help clear muddied waters[2].

On a positive note, the new framework will nudge entities towards better disclosure and governance standards, which is the need of the hour given the systemic significance of large CICs.

[1] CICs having assets size of INR 100 crore or more (individually or on the basis of consolidation with other CICs in the group) and which raises/ holds public funds. It may be noted that the reference to such registered entities as ‘systemically important’ has now been done away with and such entities will henceforth be referred to as simply ‘CICs’.  

[2] FAQ 16 to the RBI FAQs on Core Investment Companies specifically states that ‘CICs having asset size of below Rs 100 crore are exempted from registration and regulation from the Reserve Bank, except if they wish to make overseas investments in the financial sector.’

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