RBI tightens corporate governance norms for core investment firms

By: |
August 14, 2020 2:45 AM

Among the parameters a CIC will be expected to disclose are details of its investment in other CICs, its off-balance sheet exposures and the maturity pattern of its assets and liabilities.

The notification does not specifically mandate the setting up of other board-level committees, such as those for audit and remuneration, as suggested in the report of the working group.The notification does not specifically mandate the setting up of other board-level committees, such as those for audit and remuneration, as suggested in the report of the working group.

The Reserve Bank of India (RBI) on Thursday released a revised set of guidelines for core investment companies (CICs), tightening corporate governance and disclosure norms for these entities. The report of the working group on CICs was released in November 2019.

A CIC is a non-banking financial company (NBFC), which carries on the business of acquisition of shares and securities and 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. Its investments in equity shares in group companies constitute a minimum of 60% of its net assets.

Among the parameters a CIC will be expected to disclose are details of its investment in other CICs, its off-balance sheet exposures and the maturity pattern of its assets and liabilities. To address the complexity in group structures and existence of multiple CICs within a group, the RBI has restricted the number of layers of CICs within a group to two. “If a CIC makes any direct/ indirect equity investment in another CIC, it will be deemed as a layer for the investing CIC,” the central bank said in a notification.

The parent CIC in the group or the CIC with the largest asset size shall constitute a group risk management committee(GRMC). The GRMC shall report to the board of the CIC that constitutes it and shall meet at least once in a quarter. The GRMC shall consist of a minimum of five members, including executive members. At least two members shall be independent directors, one of whom shall be the chairperson of the GRMC. Members will be required to have adequate and commensurate experience in risk management practices. All CICs with asset size of more than Rs 5,000 crore shall appoint a chief risk officer (CRO) with clearly specified roles and responsibilities.

The notification does not specifically mandate the setting up of other board-level committees, such as those for audit and remuneration, as suggested in the report of the working group. The group headed by former corporate affairs secretary Tapan Ray had identified six major issues with the CIC ecosystem. Complex group structures, multiple gearing and excess leveraging and the build-up of other risks at the group level were among them. The other problem areas were corporate governance, the option of being an ‘exempted’ CIC, and on- and off-site supervision.

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