Context: The Reserve Bank has constituted a working group that will review the regulatory and supervisory framework for core investment companies.

• The six-member working group is to be headed by Tapan Ray, non-executive chairman, Central Bank of India and former secretary, Ministry of Corporate Affairs.
• The terms of reference of the working group include examination of the current regulatory framework for CICs in terms of adequacy, efficacy and effectiveness of every component thereof and suggest changes therein.

Background:

In August 2010, RBI had introduced a separate framework for the regulation of systemically important core investment companies (CICs), recognising the difference in the business model of a holding company relative to other non-banking financial companies.

What are Core Investment Companies (CICs)?

CICs are non-banking financial companies with asset size of ?100 crore and above which carry on the business of acquisition of shares and securities, subject to certain conditions.

CICs, which are allowed to accept public funds, hold not less than 90% of their net assets in the form of investment in equity shares, preference shares, bonds, debentures, debt or loans in group companies.

Investments of CIC in the equity shares (including instruments compulsorily convertible into equity shares within a period not exceeding 10 years from the date of issue) in group companies constitutes not less than 60% of its net assets as mentioned in clause.

Exemption: CICs having asset size of below Rs 100 crore are exempted from registration and regulation from the RBI, except if they wish to make overseas investments in the financial sector.

What do the term public funds include? Is it the same as public deposits?

Public funds are not the same as public deposits. Public funds include public deposits, inter-corporate deposits, bank finance and all funds received whether directly or indirectly from outside sources such as funds raised by issue of Commercial Papers, debentures etc. However, even though public funds include public deposits in the general course, it may be noted that CICs/CICs-ND-SI cannot accept public deposits.

Need:

This Concept was originated in order to safeguard NBFCs which are formed for group investments from stringent RBI procedures.