Working Group On Core Investment Companies

  • On 6th November, 2019, Working Group (WG) on Core Investment Companies (CICs) submitted its final report to the Reserve bank of India (RBI).
  • The working Group was constituted by RBI under the chairmanship of former corporate affairs secretary Tapan Ray, to review the regulatory and supervisory framework applicable to


  • To strengthen the corporate governance framework of CICs.


  • In August 2010, the Reserve Bank introduced a separate framework for the regulation of systemically important CICsrecognizing the difference in the business model of a holding company relative to other non-banking financial companies.
  • Over the years, corporate group structures have become more complex involving multiple layering and leveraging, which has led to greater inter-connectedness with the financial system through their access to public funds.
  • In September 2018, Infrastructure Leasing and Financial Company (IL&FS), a CIC with over 300 subsidiaries, defaulted on its payment following, was declared as non-performing or bad asset in the subsequent months.
  • In other few cases, it was found that the CIC had lent funds to group companies at zero percent rate of interest with bullet repayment of 3-5 years and without any credit appraisal.
  • Accordingly, as part of the Statement on Developmental and Regulatory Policies issued for the year 2019-20 on June 6, 2019, Reserve Bank announced to form a WG regarding the CICs. Finally, the WG was constituted in July, 2019.

Term of Reference

  • To examine the current regulatory framework for CICs in terms of adequacy, efficacy and effectiveness of every component.
  • To assess the appropriateness of and suggest changes to the current approach of the RBI towards registration of CICs including the practice of multiple CICs being allowed within a group.
  • To suggest measures to strengthen corporate governance and disclosure requirements for CICs.
  • To assess the adequacy of supervisory returns submitted by CICs and suggest changes therein.
  • To suggest appropriate measures to enhance RBI’s off-site surveillance and on-site supervision over CICs.

Issues Identified by WG

  1. Complex Group Structure: The Section 186 (1) of Companies Act, 2013 (which restricts the Group Structure to a maximum of two layers) is not applicable to NBFCs, which renders opacity to the groups in terms of ownership, controls and Related Party Transactions.
  2. Multiple Gearing and Excessive Leveraging: A CIC can borrow (upto 5 times of its Adjusted Net Worth) to invest in the capital of other CICs in the group. The absence of restriction on the number of CICs that can exist in a group and non-deduction of capital of CICs for their exposures in group companies (including in step down CICs), creates scope for excessive leveraging.
  3. Build-up of high leverage and other risks at group level: It deliberated on the issues pertaining to the aggregate leveragee. amount of borrowings raised by both financial and non-financial entities. It was observed that the standalone leverage of IL&FS was within the regulatory limit.However, when calculated at consolidated level it was considerably high as on March 2018.
  4. Corporate Governance: Currently, Corporate Governance guidelines are not explicitly made applicable to CICs.
  5. Review of Exempt Category and Registration: Currently, CICs with assets below the qualifying threshold (Rs. 100 crore asset size) or CICs without public funds do not requireRBI registration and hence are called “exempted” CICs.This nomenclature occasionally provided unintended credibility to such CICs, as ‘exempted’ by the RBI, and created scope for misrepresentation.
  6. Off-site surveillance and on-site supervision over CICs: Currently, no off-site reporting requirement is prescribed for CICs. Also, submission of Statutory Auditors Certificate is not mandated in respect of CICs, unlike other NBFCs. Till recently on-site inspection of CICs was also not being conducted.

Major Recommendations

Restriction on Numbers of Layers

  • The number of layers of CICs in a group should be restricted to two. As such, any CIC within a group should not make investment through more than a total of two layers of CICs, including itself.

Adjusted Net Worth (ANW)

  • For ANW calculation, any capital contribution of the CIC to another step-down CIC (directly or indirectly) shall be deducted over and above the 10% of owned funds as applicable to other NBFCs. Further, step-down CICs may not be permitted to invest in any other CIC.

Constitution of Group Risk Management Committee (GRMC)

  • Every group having a CIC should have a GRMC, entrusted with the responsibilities of identifying, monitoring and mitigating risks at the group level, periodically reviewing the risk management frameworks within the group and articulating the leverage of the Group and monitoring the same.

Strengthening Governance

  • In order to strengthen governance, WG advocated the need for inducting independent directors,conducting internal audit and preparing consolidated financial statements and ring fencing boards of CICs by excluding employees/executive directors of group firms from its board.

Retention of Registration Criteria

  • It recommended retaining the current threshold of Rs 100crore asset size for registration as CIC.
  • But, the nomenclature of ‘exempted’ CIC should be discontinued by the RBI in all future communications.

RBI to Monitor Offsite Return and Onsite Inspection

  • It recommended that Offsite returns may be designed by the RBI and prescribed for the CICs on the lines of other NBFCs. Annual submission of Statutory Auditors Certificates may also be mandated along with Onsite inspection of the CICs conducted periodically.

Core Investment Companies (CICs)

  • These are Non-Banking Financial Company (NBFC) which carries on the business of acquisition of shares and securities and holds 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.
  • Further investments in equity shares in group companies constitute not less than 60% of its net assets.
  • CIC with an asset size of less than Rs100 crore will be exempted from the requirementsof registration with RBI.
  • Due to systemic implications on account of access to public funds (such as funds raised through Commercial Paper, debentures, inter-corporate deposits and borrowings from banks/FIs), CICs having asset size of 100 crore or above are categorised as Systemically Important Core Investment Companies (CICs-ND-SI) and are required to obtain Certificate of Registration (CoR) from the RBI.