Economics Prelims cum Mains

RBI sets up panel to review core investment companies’ supervision

 

In News:

  • The Reserve Bank of India has recently constituted a working group to review regulatory guidelines and supervisory framework applicable to core investment companies (CICs).

Background:

  • Over the years, corporate group structures have become more complex involving multiple layering and leveraging, which has led to greater inter-connectedness with the financial system through their access to public funds.
  • In September 2018, Infrastructure Leasing and Financial Company (IL&FS), a CIC with over 300 subsidiaries, defaulted on its payments following which over Rs 90000 crore worth of combined banking sector exposure was declared as non-performing or bad asset in the subsequent months.
  • In light of these developments, there is a need to strengthen the corporate governance framework of CICs

 

About the Tapan Ray Committee

Image result for Tapan Ray Committee

  • The RBI has constituted a six-member committee, headed by Tapan Ray to strengthen the corporate governance framework of systematically important Core Investment Companies (CICs).

Functions of the Committee

  • Examine the current regulatory framework for CICs in terms of adequacy, efficacy and effectiveness of every component thereof and suggest changes.
  • Assess the appropriateness of and suggest changes to the current approach of the RBI towards registration of CICs, including the practice of multiple CICs being allowed within a group.
  • Suggest measures to strengthen corporate governance and disclosure requirements for CICs
  • Assess the adequacy of supervisory returns submitted by CICs and suggest changes.

Submission of report

  • The committee report is to be submitted by October 31, 2019.

 

Core Investment Companies (CIC)

  • These are Non-Banking Financial Companies (NBFCs) which have their assets predominantly as investments in shares shares, bonds, debentures etc. They can’t engage in trading of the instruments they holds.
  • CICs also do not carry out any other financial activity.
  • CIC is a non-banking financial company carrying on the business of acquisition of shares and securities and which
    • 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 and
    • Its investments in the equity shares in group companies constitutes not less than 60 per cent of its net assets
  • Only those CICs having an asset size of Rs 100 crore and above are treated as systemically important core investment companies.

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