Nov 4, 2020

Revised Master Directions on Core Investment Company, 2016

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The Reserve Bank of India (RBI) had constituted a Working Group Committee vide notification dated July 03, 2019 with the sole objective of reviewing the existing regulatory and supervisory framework for Core Investment Company (CIC) and recommending plausible changes in the framework. The report of the Working Group Committee was made public in October 2019 wherein the Committee had recommended number of measures in existing regulatory framework of CIC. The RBI accepted majority of the changes so recommended by the Committee and amended the Master Directions on CIC, 2016 w.e.f August 13, 2020. In this article, we have compared the recommendations made by the Committee vis-à-vis changes made in the CIC Master Directions, 2016:

S. No.

Recommendations of the Committee

Changes made in the Directions



Alteration in the method of calculation of Adjusted Net Worth (ANW) by deducting capital contribution of the CIC to another step-down CIC (directly or indirectly) shall be deducted over and above the 10% of owned funds.

This recommendation is accepted and manner of calculating ANW has been changed.
Further, any investment(s) made on or after August 13, 2020 by a CIC in another CIC shall be deducted whereas in respect of investment(s) made before that date, existing CICs are given time till March 31, 2023 to comply with the revised calculation.

This will impact few groups (the list of registered CIC is available at RBI website) who have multiple CICs within the group since any investment made by Parent CIC in step down CIC which shall be deducted from owned funds if that investment is in excess of 10% of its owned funds. This move is in line with the RBI NBFC-ND-SI Master Directions, 2016.
With this move, capital adequacy norm has to be rechecked whether ANW should not be less than 30% of of its aggregate risk weighted assets on balance sheet and risk adjusted value of off-balance sheet items.


Change in the nomenclature of ‘Exempted CIC’ and ‘Systemically Important CIC/ CIC-ND-SI’.

The terminology ‘Exempted CIC’ is replaced by ‘Unregistered CIC’ whereas ‘Systemically Important CIC/ CIC-ND-SI’ is replaced with CIC which required to be registered with the RBI.
Note: Unregistered CIC means a CIC (a) having asset size less than Rs. 100 crores with or without public funds or (b) having asset size Rs. 100 crores or more but not having any public funds.

With this change, the clarity is provided to such CICs which are not required to be registered with the RBI. Earlier, Unregistered CIC cannot raise public funds and used to pass board resolution for not accepting public funds but such restriction has now been done away until the asset size is less than Rs. 100 crores.


The number of layers of CICs in a group should not exceed 2 (two), as in case of other companies under the Companies Act, which, inter alia, would facilitate simplification and transparency of group structures.

The recommendation is accepted by the RBI and has made changes in the Directions.
Now, on or after August 13, 2020 the number of layers of CICs in a group is restricted to 2 only whereas in case the existing limit is in excess, the Group has re-organise itself to comply with the maximum number of CIC by March 31, 2023.

The few groups have to restructure their model to come in line with this new change. They have to option either to convert the excess CICs in the group into NBFC or merge with another CIC.


Corporate Governance

  1. At least one third of the Board should comprise of independent members if chairperson of the CIC is non-executive, otherwise at least half of the Board should comprise of independent members, in line with the stipulations in respect of listed entities.
  2. There should be an Audit Committee of the Board (ACB) to be chaired by an Independent Director (ID). The ACB should meet at least once a quarter.
  3. A Nomination and Remuneration Committee (NRC) at the Board level should be constituted which would be responsible for policies relating to nomination (including fit and proper criteria) and remuneration of all Directors and Key Management Personnel (KMP).
  4. All CICs should prepare consolidated financial statements (CFS) of all group companies (in which CICs have investment exposure).
  5. All CICs registered with RBI should be subjected to internal audit.
  6. A nominee of the CIC who is not an employee / executive director of the CIC may be appointed in the Board of the downstream unlisted entities by the respective CIC, where required.
  1. The RBI has accepted all the recommendations with regard to corporate governance as prescribed under Companies Act, 2013. Thus, the recommendations have been accepted with respect to having minimum number of Independent Directors, constitution/ composition of the Audit Committee and Nomination & Remuneration Committee.
  2. In addition to above, the RBI has mandated CIC to have functional website containing basic information of itself and the group besides Annual Report, Corporate Governance Report and Management Discussion & Analysis.
  3. The information regarding group companies which are not consolidated has to be disclosed in the Annual Report.
  4. In addition to existing disclosures, the Annual Financial Statements shall also disclose the material information which inter-alia includes:
  5. Investment in other CICs;
  6. ALM- Maturity pattern of Assets and Liabilities;
  7. Business Ratios;
  8. Overseas Assets (Joint Venture/ Subsidiaries abroad);
  9. Registration/ licenses obtained from other financial regulators;
  10. Penalties imposed by the RBI or other regulator;
  11. Reservations/ observations of the auditor and its impact on profit & loss account. 

New chapter of ‘Corporate Governance and Disclosure requirements’ has been added in the revised framework. This will make CICs more responsible towards the governance issues in their business model since they need to disclose financial and non-financial parameters not only in their Annual Report but also need to disclose on their website. Further, compulsory appointment of Independent Directors and constitution of ACB/ NRC will bring in more transparency in the functioning of CICs. However, this will increase the cost of CICs to have Independent Directors on their board and have functional website particularly smaller CICs.

Following recommendations are not accepted:

  • Consolidation of all group companies while preparing consolidated financial statements under Companies Act, 2013;
  • Constitution of Asset Liability Management Committee;
  • CIC should be subjected to Internal Audit;
  • Only Non-Executive Director is eligible for appointment as a nominee on the board of downstream companies.

Fit and Proper criteria of Director
The CIC should appoint directors on its Board based upon the fit and proper criteria.


The RBI has mandated CIC to have a board approved policy on ‘fit and proper’ status of directors not only at the time of appointment but on continuous basis. 



In line with RBI NBFC Master Directions, the CIC shall abide by the ‘Fit and Proper’ Criteria while appointing any person as a director on its board and on continuous basis wherein proposed director has to undertake and provide every possible information in order to test the skills and other attributes of becoming a director of CIC.


Risk Management
Every conglomerate having a CIC should have a Group Risk Management Committee (GRMC) which, inter alia, should be entrusted with the responsibilities of (a) identifying, monitoring and mitigating risks at the group level (b) periodically reviewing the risk management frameworks within the group and (c) articulating the leverage of the Group and monitoring the same.


The RBI has accepted the recommendations of the Committee with respect to risks associated with the CIC and accordingly, has made amendments in the Directions:

  1. Appointment of Chief Risk Officer (CRO) where the asset size of CIC is more than Rs. 500 crores
    1. CRO shall possess adequate professional qualification/ experience.
    2. CRO shall be a senior official in the CIC.
    3. CRO shall be appointed for a fixed term.
    4. CRO shall be involved in identification, measurement and mitigation of risks but he shall not be given any other responsibility.
  2. Constitution of Group Risk Management Committee
    1. Parent CIC shall constitute the Committee at group level.
    2. Committee shall constitute minimum 5 members incl. executive directors out of which atleast 2 shall be Independent Directors.
    3. Chairman of the Committee shall be Independent Director.
    4. Committee shall meet atleast once in a quarter.


In consistent with the RBI NBFC Master Directions, CIC having asset size of more than Rs. 50 Billion is required to appoint CRO who shall be senior officer in the CIC and must possess adequate qualifications in the area of risk management. CRO is expected to function independently who is required to report directly to the Managing Director & CEO or Risk Management Committee.

Further, as recommended by the Committee, the parent CIC is required to constitute Group Risk Management Committee which will analyse the risks associated with the group companies, assess effective system in place to address risk management, etc. 

From the above table, it is clearly visible that all material recommendations of the Committee have been accepted by the RBI and made part of the principal CIC Master Directions. These new rules of the game will surely bring much required transparency and is expected to remove opaqueness in the operations of the CICs. With the change in calculation of ANW, the practise of generating excessive leverage ratio, through stepdown CICs in the group, adopted by many corporates will be curtailed. All registered CIC are now subject to corporate governance norms and on this front, CICs are equally treated as systemically important NBFCs. The complex group structure has now been streamlined by allowing only 2 CICs in the group. Since CIC has exposure to public funds in the nature of NCDs, Commercial Papers, Term Loans, etc from Banks/ other Financial Institutions for onward lending to group companies and these group companies in turn have varied risks associated with their businesses. Thus, the requirement is felt to constitute the group level Risk Management Committee to mitigate the risks connected with the borrower companies since the repayment, indirectly, has to be made by these borrowers through the liability to repay loan is that of CIC only. Besides this, the appointment of CRO in case of large CIC and Independent Directors will render the CIC to be more responsible towards any default or malpractices, if any adopted by the CIC. However, the time will tell the implication of these new changes in the CIC framework.


Mr. Ankit Singhi

Head Corporate Affairs & Compliances


+91 11 40622208

Mr. Nitesh Latwal

Associate Partner


+91 11 40622249

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