RBI’s panel suggests measures to strengthen core investment companies

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News:The Reserve Bank of India(RBI) panel to review the regulatory and Supervisory Framework for Core Investment Companies headed by Tapan Ray has submitted its report.

Facts:

About CIC’s:

  • Core Investment Companies (CICs) are Non-Banking Financial Companies(NBFCs) having asset size of Rs 100 crore and above.
  • The main business of CIC is of acquisition of shares and securities with certain conditions.
  • 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.
  • Further, investments in equity shares in group companies constitute not less than 60% of its net assets. 

Key Recommendations of the panel:

  • Every conglomerate with a CIC should have a Group Risk Management Committee.This committee should be responsible to monitor group-level leverage. 
  • One-third of the board should comprise of independent members if the chairperson of the CIC is a non-executive member, otherwise at least half of the board should comprise of independent members. 
  • Audit committee of the board should be chaired by an independent director who has oversight over the CIC’s financial reporting process and policies.
  • The current threshold of Rs 100 crore asset size and access to public funds for registration as CIC should be retained.
  • There is a need for ring fencing boards of CICs by excluding employees or executive directors of group firms from its board.
  • The number of layers of CICs in a group should be restricted to two.As such,any CIC within a group shall not make investments through more than a total of two layers of CICs.The word layer means subsidiary or subsidiaries of the holding company.