RBI exempts investment cos of big groups from CIC norms compliance

Big industrial groups,which are controlled by promoters through their investment companies,have got a big relief with the Reserve Bank of India exempting them from registration and compliance of its core investment companies (CIC) regulations.

Big industrial groups,which are controlled by promoters through their investment companies,have got a big relief with the Reserve Bank of India exempting them from registration and compliance of its core investment companies (CIC) regulations. The RBI has also given a new definition to public funds that can be accessed by such investment companies,giving a big relief to such business groups.

According to a corporate lawyer,while the extant NBFC regulations provided that exemption from exposure norms is available only if public funds have not been accessed by the NBFC (non-banking finance company),this condition is relaxed under the CIC Guidelines. Thus,strategically important investment companies are exempted from exposure norms,even when public funds are accessed. In other words,such CICs can now escape from close RBI scrutiny after the registration.

The wide definition of group companies and exclusion of compulsorily convertible instruments from definition of public funds and leverage ratio computation are welcome liberalisations by the RBI, said an analyst of KPMG. The provisions of the RBI Act shall not apply to a systemically important core investment company,subject to the condition that it meets with the capital requirements and leverage ratio as specified in the directions, the RBI said in a circular.

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The RBI has defined a core investment company as a non-banking financial company carrying on the business of acquisition of shares and 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. Besides,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 per cent of its net assets.

The RBI had earlier exempted CICs having a total asset size of Rs 100 crore or more but not accessing public funds from the requirement of obtaining RBI registration and complying with the CIC regulations. The total assets of all CICs in the group will be aggregated for determining Rs 100 crore threshold (irrespective of whether these CICs have accessed public funds or not). Thus,CICs in the group accessing public funds may be required to obtain registration and comply with CIC norms (even though its total assets do not exceed Rs 100 crore). However,raising funds through instruments compulsorily convertible into equity shares within 10 years from issue date are not regarded as public funds.

The leveraging capacity of CICs will increase since instruments compulsorily convertible into equity shares within 10 years from issue date are not included as a part of outside liabilities while calculating the leverage ratio, KPMG said.