Core Investment Companies

A Core Investment Company (CIC) is a non-banking financial company whose main business is holding investments in companies belonging to its group. Under the Reserve Bank of India (RBI) framework, it must satisfy prescribed investment-composition and activity restrictions, distinguishing it from an ordinary investment or lending company.

What qualifies a company as a CIC?

The classification depends on both the composition of the company’s assets and the activities it undertakes.

• At least 90% of its net assets must consist of investments in equity shares, preference shares, bonds, debentures, debt or loans in group companies.
• At least 60% of its net assets must consist of equity investments in group companies; eligible compulsorily convertible instruments are included for this purpose.
• It must not trade in its investments in group companies, except through block sales for dilution or disinvestment.
• Its other financial activities are restricted to specified activities, such as investing in bank deposits, money-market instruments and government securities, and providing loans or guarantees to group companies.

When RBI registration is required

Meeting the definition of a CIC does not automatically require registration. The registration requirement combines an asset-size threshold with access to external funding.

• A CIC must register with the RBI when its asset size is ₹100 crore or more, assessed individually or together with other CICs in the group, and it raises or holds public funds.
• Public funds include bank finance, inter-corporate deposits and funds raised through instruments such as commercial paper and debentures, whether accessed directly or indirectly.
• Public funds are broader than public deposits; access to public funds does not itself authorise a CIC to accept deposits from the public.
• CICs below the applicable asset-size threshold, and CICs that do not access public funds, are exempt from registration.

Prudential safeguards and their purpose

A CIC can transmit financial stress between group companies and their lenders. RBI regulation therefore constrains leverage and requires a capital cushion.

• For CICs subject to registration, adjusted net worth must be at least 30% of aggregate risk-weighted on-balance-sheet assets and the risk-adjusted value of off-balance-sheet items.
• Their outside liabilities must not exceed 2.5 times adjusted net worth.
• These requirements seek to limit excessive borrowing against group investments and strengthen the company’s capacity to absorb losses.