A working group set up by the Reserve Bank of India has suggested that core investment companies (CICs) work on stronger governance practices like the formation of board-level committees, the appointment of independent directors and internal audits.
These are part of the recommendations by the Working Group to review the Regulatory and Supervisory Framework for Core Investment Companies set up in July 2019.
Core investment companies are non-banking financial companies (NBFCs) that 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 the group companies.
Experts have been seeking a review of CIC guidelines ever since defaults by Infrastructure Leasing and Financial Services Ltd, a large systemically important core investment company.
In September 2018, Infrastructure Leasing and Financial Company, a CIC with over 300 subsidiaries, defaulted on its payment following which over Rs 90,000 crore worth of combined banking sector exposure was declared as a non-performing or bad asset in the subsequent months.
RBI formed the working group in July to review regulatory and supervisory framework for CICs. RBI made their report public and invited public comments on it.
“Currently, corporate governance guidelines are not explicitly made applicable to CICs. To strengthen the governance practices, the working group recommends the constitution of board-level committees viz. audit committee, nomination, and remuneration committee and group risk management committee,” the report said.
The Working Group, therefore, suggested that step-down CICs may not be permitted to invest in any other CIC while allowing them to invest freely in other group companies. That apart, the committee also suggested that the capital contribution by a CIC in a step-down CIC, over and above 10% of its owned funds, should be deducted from its adjusted net worth, as applicable to other NBFCs.