Core Investment Companies Can Have Only Two Layers, Says RBI
A pedestrian walks past the Reserve Bank of India (RBI) building in Mumbai, India, on Tuesday, March 3, 2020. Photographer: Kanishka Sonthalia/Bloomberg

Core Investment Companies Can Have Only Two Layers, Says RBI

The Reserve Bank of India has directed core investment companies to restrict the number of layers in their group structure to just two as it seeks to clean up the structure of complex financial groups. Existing firms have been given until the end of March 2023 to comply with this simplified structure.

In a circular issued on Thursday, the central bank revised existing guidelines applicable for CICs based on recommendations made by a working group in November 2019, headed by Tapan Ray, the former corporate affairs secretary.

“To address the complexity in group structures and existence of multiple CICs within a group, it has been decided that the number of layers of CICs within a Group (including the parent CIC) shall be restricted to two, irrespective of the extent of direct or indirect holding/ control exercised by a CIC in the other CIC,” the RBI said.

The working group was constituted in July 2019 in the wake of a default by once AAA-rated Infrastructure Leasing and Financial Services Group in September 2018. The group had built up excess leverage over time and due to its inter-connected structure, troubles snowballed across the group.

“Even today there could be groups with more than two layers for CICs so the main intention seems to be to address the concerns around multi-layered CICs and potentially high leverage within the group,” Manushree Saggarice, vice president and sector head of financial sector ratings at ICRA, told BloombergQuint. “But existing companies have nearly three years to comply with this requirement before the knock on adjusted net worth is applicable.”

The RBI also has enhanced disclosures to ensure CICs are more transparent, she said.

Other Key Changes

Apart from the restricting the number of layers within a CIC, the RBI has made other changes to rules governing risk management, disclosure, borrowings and net worth.

Adjusted Net Worth

  • If the direct or indirect capital contribution made by one CIC in another CIC exceeds 10% of the owned funds of the investing CIC, the capital contribution should be deducted when computing adjusted net worth.
  • The deduction will take place immediately for any investment made by one CIC in another CIC from now on.
  • If an investment by an CIC in another CIC is already in excess of 10% as of August 13, 2020, the entity need not deduct the amount till March 31, 2023.

Financial Statement & Investments

  • CICs need to prepare consolidated financial statements of the group as a whole. The auditor of the CFS auditor or the ‘principal auditor’ will rely on the auditors of the other respective entities.
  • Quarterly statement of deviation of funds from stated purpose to be signed by chief executive or finance officer.
  • CICs can only invest in money market instruments/debt instruments with a maturity of up to one year, including through mutual funds.

Risk Management Committee

  • The parent CIC or largest CIC in the group has to constitute a group risk management committee, comprising five members, including two independent members. The chairman of the committee must be an independent member.
  • This risk committee will analyse all material risks, intra-group conflicts, implementation of corporate governance framework across the group.


  • The RBI has mandated strict disclosure formats which require details of leverage, guarantees and investments.
  • A detailed disclosure of the maturity pattern of assets and liabilities has also been prescribed.
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