For better monitoring systemic risks in the financial sector, RBI, in its annual credit and monetary policy, has said core investment companies (CICs) which have their assets predominantly as investments in shares for holding stakes in group companies, and which do not carry on any other financial activity, justifiably deserve a differential treatment in the regulatory prescription applicable to non-banking finance companies falling under the non-deposit category systematically important (NBFCs-ND-SI) category.
RBI has also proposed to treat CICs with an asset size of Rs 100 crore and more, as systemically important core investment companies and will be required to register with RBI. CICs fulfilling minimum capital and leverage criteria will be given exemption from maintenance of net owned fund and exposure norms applicable to NBFCs-ND-SI. They would be required to submit an annual certificate from their statutory auditors regarding compliance with the prescribed norms. The draft guidelines for this will be put up on RBI?s website by April 30, 2010.
The regulatory framework for NBFCs has seen particular focus on inter-conne- ctedness and systemic risk. Under this, access to public funds has been perceived as a systemic issue necessitating close regulation and monitoring of NBFCs, including systemically important non- deposit taking NBFCs (NBFCs-ND-SI).
The central bank also proposed to make a number of modifications to the existing norms. SCs/RCs can acquire the assets either in their own books or directly in the books of the trusts set up by them. The period for realisation of assets acquired by SCs/RCs can be extended from five to eight years by their boards of directors, subject to certain conditions. Asset/security receipts (SRs), which remain unresolved/not redeemed as at the end of five or eight years will be treated as loss assets.
It will be mandatory for SCs/RCs to invest not less than 5% of each class of SRs issued under a particular scheme and continue to hold the investments till all the SRs issued under that class are redeemed completely.
With a view to bringing transparency and market discipline in the functioning of SCs/RCs, additional disclosures relating to assets realised during the year, value of financial assets unresolved as at the end of the year, value of SRs pending redemption, among others, are being prescribed.