NEW DELHI: The Reserve Bank of India (RBI) appointed committee on the regulatory and supervisory framework for Core Investment Companies (CICs) has recommended tighter norms to cut leverage by CICs and improve governance as well as regulatory supervision. CIC is a non-banking finance company (NBFC) that holds equity shares and securities in group companies, not less than 90 per cent of its net assets, and not less 60 per cent of its net assets as equity shares in group companies.
The panel headed by former corporate affairs secretary Tapan Ray set up in July 2019 has recommended that the number of layers of CICs be restricted to two and that any CIC within a group shall not make an investment through more than a total of two layers of CICs, including itself. This comes in the backdrop of larger number of firms under a holding CIC creating complexity in the holding structure, and build-up of leverage in the group.
“The complexity of large conglomerates renders opacity to the groups in terms of ownership, controls and related party transactions. In addition, as section 186 (1) of Companies’ Act 2013 (which restricts the group structure to a maximum of two layers) is not applicable to NBFCs, the scope of complexity gets exacerbated. The WG recommends that the number of layers of CICs in a group should be limited through regulation.’’
To cut excessive leverage the committee had recommended that step down CICs may not be permitted to invest in any other CIC while allowing them to invest freely in other group companies. Further, it has recommended setting up of Group Risk Management Committee to maintain oversight on the emerging risk of the entities in the group as well as of the whole group.
Troubles at large group like IL&FS that created excess leverage with little oversight at the CIC had exacerbated the need for a fresh look at the governance structure of CICs.