Understanding Core Investment Companies (CIC)

1.      Non-Banking Financial Company (NBFC)

A NBFC is a company registered under the companies Act, 1956 and is engaged in the business of

·         Loans & Advances

·         Acquisition of shares/ stock/ bonds/ debentures/ securities issued by government or local authority or other securities of like marketable in nature

·         Leasing, hire-purchase, insurance business, chit business

However, a NBFC doesn’t include any institution whose principal business is that of agriculture activity, industrial activity, sale/ purchase/ construction of immovable property.

2.      Principal Business

It is defined as Financial Assets + Income arising there from >= 50% of its total assets (netted off by intangible assets) and total income respectively.

3.      Classification of NBFCs

NBFCs are classified into the following categories:-

·         Asset Finance Company (AFC)

·         Investment Company (IC)

·         Loan Company (LC)

AFC would be defined as any company which is financial institution carrying on as its principal business the financing of physical assets supporting productive / economic activity, such as automobiles, tractors etc.

LC would be defined as any company which is financial institution whose principal business is that of providing finance, whether by making loans or advances or otherwise for any activity other than its own but doesn’t include AFC.

IC would be defined as any financial intermediary whose principal business is that of buying and selling securities.

CIC means a NBFC carrying on the business of acquisition of shares and securities which satisfies the following conditions:-

·         Investment in equity shares, preference shares, debt or loans in group companies >= 90% of Total Assets

·         Investments in the equity shares in Group Companies >= 60% of its Total Assets

·         No trading in the investments in shares, debt or loans in Group Companies except through block sale

·         It doesn’t hold/ accept public deposits

Total assets means the assets appearing on the assets side of the balance sheet but excluding:

·         Cash & Bank Balances

·         Investment in Money Market Instruments

·         Advance Payment of Taxes

·         Deferred Tax Asset

CICs with asset size less than Rs. 100 crore:-

·         Exempted from the requirements of registration with RBI

·         Would be required to apply to RBI for COR within 3 months of the date of achieving a balance sheet size of Rs 100 crore.

CICs with asset size greater than Rs. 100 crore:-

·         Required to obtain COR from RBI

·         Min CRAR of 30%

·         Debt Equity Ratio max 2.5 times