Regulatory Framework of Core Investment Companies NBFC (CIC) in India.

Under section 45I of the Reserve Bank of India Act of 1934 ("RBI Act"), a company registered under the Companies Act of 1956 / Companies Act of 2013 operates in the Stock / Bond Purchase Area. Bonds/securities or other negotiable securities, such as leasing, installment purchase, insurance, bonds, loans, and advances are considered non-bank financial corporations ("NBFC"). Similarly, a company that receives deposits under a lump sum or scheme or disbursement agreement (in the form of contributions or otherwise) falls within the scope of the NBFC. All NBFCs must receive a Certificate of Registration (COR) by Section 45-IA of the RBI Act. The reason for such a requirement to obtain the COR is to keep the NBFC's financial activities under control through disclosure requirements. However, the need to obtain a COR and comply with the NBFC guidelines was seen as an unnecessary burden for companies that have primary interests in their group companies.

 

The legal framework of the Core investment companies.

Given the nature of the activity of companies whose assets are mainly composed of shares in shares of group companies1, which are not used for commercial purposes and have no other financial activity, they are defined as Basic Core Investment Companies (CIC). As a result, CICs are treated differently in the regulatory requirement for nonbank financial corporations that do not make deposits. CICs that do not deposit and are not consistently large are exempt from registration according to applicable RBI guidelines. According to paragraph 2 of the RBI Circular on the Regulatory Framework for Basic Investment Companies, the CICs were not considered to be companies that buy shares and securities in the following cases:

§  If not less than 90% of its net assets2 in equity investments for

§  Participation in affiliated companies; with an investment of at least 60% in shares;

§  If you have not traded these shares, except for bulk sales (to dilute or sell investments);

§  If they have no other financial activity; and

§  If they do not have/accept public deposits.

Below are the relevant provisions that apply to the CICs following the instructions of the Core investment companies (Banco de la Reserva) of 2011:

"These instructions apply to any basic investment company, that is, a non-bank financial company active in the acquisition of shares and securities and that meets the following conditions at the time of the last audited balance sheet:

a)   Hold at least 90% of its net assets in the form of investments in shares, preferred shares, bonds, bonds, debt securities or loans to group companies;

b)   Its shareholdings (including instruments that may be mandatorily converted into shares within a period not exceeding 10 years from the date of issue) in affiliated companies represent at least 60% of its net assets as stated indicated in (i) above;

c)   Does not invest in stocks, bonds, bonds, debt securities or loans in group companies, except through bulk sales for dilution or divestment;

d)   Does not carry out any other financial activities under Sections 45I (c) and 45I (f) of the Reserve Bank of India Act of 1934, except investments in

§  Bank deposits,

§  Money market instruments, including money market funds

§  Government securities and

§  Bonds or bonds of group companies, granting loans to group companies and issuance of guarantees on behalf of group companies. "

Systematically important central investment firm

According to the definition of a systematically large central investment company (“CICs-ND-SI”), it is necessary to register with the RBI as CICs-NDSI if a CIC meets the following two conditions.

CIC has total assets of at least Rs 100 million, individually or collectively, with other central investment companies in the group. AND

The company collects and retains public funds.

Said CIC-ND-SI must obtain the COR under Section 45-IA of the RBI Law and is subject to the provisions of the RBI Law and the instructions issued by the Reserve Bank from time to time.

         

Foreign investment in CIC

Foreign investment in an Indian company that only invests in the capital of other Indian companies requires prior approval from the Indian government, regardless of the amount or size of the foreign investment. As CICs invest in the capital of their group companies, any foreign investment in a CIC requires prior approval from the Indian government.

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