Core Investment Company

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Core Investment Company

About Core Investment Company

Core Investment companies are companies holding shares, bonds debentures and is categorized as NBFCs by the RBI. They can’t engage in trading of the instruments they holds.

Core Investment Company (CIC) is a non-banking financial company carrying on the business of acquisition of shares and securities and which (a) holds not less than 90 per cent of its net assets in the form of investment in equity shares, preference shares, bonds, debentures, debt or loans in group companies and (b) its investments in the equity shares in group companies constitutes not less than 60 per cent of its net assets as on the date of the last audited balance sheet. CICs were not required to obtain Certificate of Registration (CoR) from Reserve Bank. Practically, it is very difficult to determine what type of share transaction the CIC is engaging with.

Considering the many associate issues, the RBI has enacted a revised regulatory framework for CICs from 2010 onwards. The salient features of the framework are as follows:

Core Investment Companies (CIC) with an asset size of less than Rs100 crore will be exempted from the requirements of registration with RBI. For this purpose all CICs belonging to a Group will be aggregated.
CICs with asset size above Rs. 100 crore but not accessing public funds are also exempted from the requirement of 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 from the Reserve Bank.

Requirements criteria of Core Investment Company (CIC)

There are various criteria to establish the CIC in India. Gist is given follows:

Require a Non-Banking Financial Company (NBFC);
Book value/Asset should be Rs.100 Crore and above;

Carrying on the business of acquisition of shares and securities and which satisfies the following conditions as on the date of the last audited balance sheet;
It 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;a

Its investments in the equity shares (including instruments compulsorily convertible into equity shares within a period not exceeding 10 years from the date of issue) in group companies constitutes not less than 60% of its net assets as mentioned in clause (iii) above;
It does not trade in its investments in shares, bonds, debentures, debt or loans in group companies except through block sale for the purpose of dilution or disinvestment;

It does not carry on any other financial activity referred to in Section 45I(c) and 45I(f) of the RBI act, 1934 except investment in bank deposits, money market instruments, government securities, loans to and investments in debt issuances of group companies or guarantees issued on behalf of group companies.
It accepts public funds.

Registration criteria for Core Investment Company

CIC with asset size less than Rs.100 Crore are accepted from license requirement from RBI under Section 45-IA of the RBI Act.
CIC with the assets size above Rs.100 Crore if they are not accessing the public fund in any form direct or indirect are exempted from RBI License.

CICs having the asset size of Rs.100 crore or above and accessing the public fund in any form deposit or debenture or bond are required to obtain approval from RBI under section 45-IA of the RBI Act.
In respect of leverage ratio, the Core Investment Companies are required to ensure that its total outside liabilities do not exceed 250% of adjusted net worth on the 1st April of the financial year.

In respect of capital adequacy ratio, the CIC-SI minimum capital adequacy ratio should be 30% of the adjusted net worth. Adjusted net worth means considering all of balance sheet item.
Adjusted Net Worth, need to be understood to calculate the adjusted Net worth as Non-Banking Financial (Non-Deposit Accepting or Holding) Companies Prudential Norms (Reserve Bank) Directions, 2007.

Net owned fund as per last audited balance sheet, (+Plus) 45% of the amount standing to credit of revaluation reserve (+Plus) 50% of the unrealized appreciation in the book value of quoted investments as at the date of the last audited balance sheet (-Less) the amount of diminution in the aggregate book value of quoted investments.
Total Assets means – (i) cash and bank balances (ii) investment in money market instruments, (iii) advance payments of taxes, and (iv) deferred tax asset.

Questionnaire:

What is core Investment Company? Core Investment Companies are limited companies holding equity shares, preference shares or debentures in other group companies. Often such companies are mainly establishing as group businesses and who controls the subsidiaries by holding majority shareholding and is defined as NBFCs by the RBI. Core Investment Company cannot do trading of shares or debentures. RBI now approves that only those CICs having a net asset size of Rs.100 crore and above shall be recognized as systemically important core investment companies.

How you can classify Core Investment Company?

· CIC is maintaining not less than 90% of net sales as Shares or debentures or bond or loan and advance in the group companies.

· CIC’s investments in the equity shares in group companies shall be not less than 60 percent of net assets. Net assets shall be determined as per the last audited balance sheet.

What is the registration requirement for core investment companies?

CIC (core investment company) with Asset size less than Rs. 100 Crore are excepted from license requirement from RBI under Section 45-IA of the RBI Act.
CICs with the assets size above Rs. 100 Crore if they are not accessing the public fund in any form direct or indirect are exempted from RBI License.
CICs having the asset size of 100 crore or above and accessing the public fund in any form deposit or debenture or bond are required to obtain approval from RBI under section 45-IA of the RBI Act.

What is Minimum Capital Adequacy Ratio and Leverage Ratio?

Leverage Ratio: Core investment companies are required to ensure that its total outside liabilities do not exceed 250% of adjusted net worth on the 1st April of the financial year.

Capital Adequacy Ratio: For e CIC-SI minimum capital adequacy ratio should be 30% of the adjusted net worth. Adjusted net worth means considering all off balance sheet item.

What is the adjusted Net worth?

Following calculation, need to be understood to calculate the adjusted Net worth as Non-Banking Financial (Non-Deposit Accepting or Holding) Companies Prudential Norms (Reserve Bank) Directions, 2007.
Net owned fund as per last audited balance sheet
Plus 45% of the amount standing to credit of revaluation reserve.
Plus 50% of the unrealized appreciation in the book value of quoted investments as at the date of the last audited balance sheet
Less the amount of diminution in the aggregate book value of quoted investments.