Things to Know About the Core Investment Companies
Here, is what you need to know about some important factors related to the core investment companies. Basically, these are the companies which have invested their assets in the shares for holding the stakes in group companies. Their intention of investment is only for the shares not for trading and nor for any other financial activities.
The core investment companies will have minimum of 90% of their assets in the group companies either in the form of equity, preference shares, convertible bonds or loans. There are many such companies that will help others in the market to grow as well as improve the Indian economic conditions.
In order to improve the regulatory acts for any such kind of investments, and to provide a safe and effective environment to the investors, the RBI with authorization has added a new element to the earlier Indian finance lexicon of the December 2010. The RBI has named it as the CIC or core investment companies. By adding this element the central bank, it has given a clear cut meaning to the non banking investment companies.
Prior to the addition of this element, the RBI also had concerns pertaining to such companies’ regulatory characterization. The RBI even expressed that there were some practical difficulties in identifying the company that has its shares as investments or in the itinerary of various businesses. Only the latter factor would fall under the ambit of non banking finance company or the NBFC regulation.
There are many added features in the new mandate. According to this, if a CIC is having its assets less than Rs.100 crores, then the company need not register with the RBI as either CIC or NBFC.
If the investment company has a larger balance sheet, then it is mandatory to obtain a certificate of registration from the RBI.
In order to qualify as a CIC, the holding companies need to qualify under the following incremental requirements:
The company should not hold anything less than 90% of its total assets as the preference shares, equity shares or loans in the set companies
The investment in equity shares in group companies should not be less than 60% of its total assets
The company is not supposed to trade in its investments, but it can block sale the investment for the purpose of disinvestment
The CIC is not supposed to involve itself in any kind of financial activities. However, it can make investments in money market instruments, bank deposits, intra group loans, government securities and guarantees.
As part of the new CIC scheme, any company will be subjected to twofold regulatory regime. Firstly, the companies are required to maintain a minimum capital ratio. Secondly, the CICs would be subjected to minimum control ratio, whereby their indebtednesses should not be more than 2.5 times the set net worth. More important certification with respect to the compliance is also needed.
With such kinds of regulations, the policy makers have taken very crucial steps towards opening new avenues for the investments while maintaining the prudent economic growth of the country in mind.
Ms. Sowmya Somaiah is a Company Secretary and Founder of “Sunshine Corporate Solutions Pvt Ltd” at Bangalore, India. For more information visit http://www.sunshinecorp.biz