Core Investment Companies – A Big Confusion

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Core Investment Companies – A Big Confusion

April 1, 2020


The Company will be treated as a Non-Banking Financial Company (“NBFC”) if its financial assets are more than 50 per cent of its total assets (netted off by intangible assets) and income from financial assets is more than 50 per cent of the gross income. Further, both these tests are required to be satisfied as to the determinant factor for the principal business of a company.

“Financial Assets means, Investments in Government Securities, Corporate Sector Shares, Bonds and Debentures, Government Guaranteed Bonds, Corporate Sector Commercial Papers (Including securities of quasi Govt. Authorities, Municipalities etc.), loans and advances (incl. interest receivable) in India, outside India & hire purchase equipment leasing, vehicle & other bill discounting”.

The Reserve Bank of India (“RBI”) vide circular # DNBS (PD) CC.No.197/03.10.001/2010-11 dated August 12, 2010 (“CIC Guidelines”) introduced the concept of Core Investment Company.

Core Investment Companies (“CICs”) are companies whose assets are largely invested in their group companies either in the form of equity, preference shares or convertibles bonds or loans. We can also say that such companies are simply passive holding companies, meant for maintaining control over their group companies and do not carry on any other financial activity. The Core Investment Companies (Reserve Bank) Directions, 2012’ (the “CIC Directions”) wherein a CIC is defined as an NBFC carrying on the business of acquisition of shares and securities and which satisfies the following conditions as on the date of the last audited balance sheet:

·     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;

·     Its investments 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 (i) above;

·     It does not trade in its investments in shares, bonds, debentures, debt or loans in group companies except through block sale for the purpose of dilution or disinvestment;

·     It does not carry on any other financial activity referred to in Section 45I(c) and 45I(f) of the Reserve Bank of India Act, 1934 except granting of loans to group companies, issuing guarantees on behalf of group companies and investment in:

o  bank deposits,

o  money market instruments, including money market mutual funds.

o  government securities, and;

o   bonds or debentures issued by group companies.

Under the CIC Directions, only those CICs having asset size of Rs. 100 crore or more and having public funds, also known as Systemically Important CICs (‘CIC-SI’) are required to get themselves registered with RBI

Based on the above plain reading, the Company must be an NBFC for it to become a CIC under the applicable regulations of the RBI.

However, in terms of the FAQ No. 26 on “Core Investment Companies” hosted by RBI on its website, which is reproduced below, “CICs need not meet the principal business criteria for NBFCs”.

“26. A company has investments in Group companies but does not meet the criteria of principal business as defined in terms of asset-income criteria to be as an NBFC. Can the company still be registered as a CIC or does it need to first register as an NBFC?

Ans: CICs need not meet the principal business criteria for NBFCs.”

The confusion starts here, in terms of the CIC Guidelines, “CIC is a Core Investment Company which is an NBFC company……….”. The interpretation which is drawn here is that a Company needs to be an NBFC to become a CIC but the FAQ above clearly states that CICs need not meet the principal business criteria for NBFCs. Anyhow, the FAQ’s of RBI is not legally binding on the Company.

Further, it may be noted that only a few companies are registered with RBI as CIC till June 30, 2018, in terms of the list hosted by RBI on its website.

In India, in the recent times, the structured debt for power sector has grown multi-fold and the model followed in such structures is the “Special purpose vehicle model” which generally satisfies all the conditions to become a CIC other than being an NBFC.  Based on my research, these companies are not obtaining CIC registration on the pretext that they are not NBFC’s.

Its high time that RBI clarifies its stand on this confusion and settles the law.

Author: Prashant Jain, Co-Founder & Partner.

Disclaimer: The content of this article is intended to provide a general guide on the subject matter. Specialist advice should be sought about your specific circumstances. For any queries, the author can be reached at

Updated as on August 21, 2018

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