Core investment companies can’t have overseas unit just for fund raising: RBI

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The Reserve Bank of India (RBI) said core investment companies (CICs) of Indian companies should not set up subsidiaries overseas either as joint venture or as a wholly owned subsidiary only for the purpose of raising resources for its Indian operations. The central bank said in a release that the WOS or JV being established abroad should not be a shell company, having no significant assets or operations. The central bank also asked all CICs desirous of making overseas investment in financial sector to seek its prior approval.

However, the companies undertaking activities such as financial consultancy and advisory services will not be considered as shell companies said RBI.

RBI defines a CIC as one that runs the business of acquisition of shares and securities, and holds not less than 90 per cent of its net assets in the form of investment in equity shares, preference shares, bonds, debentures, debt or loans in group companies. In June 2011, RBI made it mandatory for all holding companies in non-banking financial services to register with it, and issued guidelines for the purpose. For instance, Tata Sons, the principal holding company of the Tata group, had become the country’s first core investment company (CIC) registered with the central bank.

RBI on Thursday said CICs making overseas investment in non-financial sector should have a net worth which is more than 30 per cent of its aggregate risk-weighted assets on the balance sheet and risk-adjusted value of the off-balance sheet items at the end of the financial year. The level of net non-performing assets of the CIC should not be more than one per cent of the net advances, as on the date of the last audited balance sheet.

The CIC should generally be earning profit continuously for the last three years and its performance should be satisfactory during the period of its existence.

The total overseas investment should not exceed 400 per cent of the owned funds of the CIC. The total overseas investment in financial sector should not exceed 200 per cent of its owned funds. Investment in financial sector should be only in regulated entities abroad, said the central bank.

Overseas investments by a CIC in financial or non-financial sector would be restricted to its financial commitment. The CIC can issue guarantees or letter of comfort to the overseas subsidiary if it is engaged only in non-financial activity.

CICs must ensure that investments made overseas do not result in creation of complex structures. In case the structure overseas requires a non-operating holding company, there should not be more than two tiers in the structure. CICs having more than one non-operating holding company in existence, in their investment structure will have to report to RBI for a review.

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