The RBI on Thursday tightened its rules on core investment companies (CICs) when it curtailed the number of layers of such entities in a group and directed them to make more disclosures. The RBI accepted the proposals of a panel under former corporate affairs secretary Tapan Ray, which had submitted its report in November 2018.

A CIC is a non-banking finance company (NBFC) which carries on the business of the 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.

The Tapan Ray-panel had observed that the Companies’ Act 2013 restricted the group structure to a maximum of three layers, with one CIC at the top which could hold investments in step-down entities. However, NBFCs were exempted from this provision, which facilitated the proliferation of multiple layers of CICs in a group with cross-holdings.

The RBI said the number of layers of CICs in a group should now be restricted to two, irrespective of the extent of direct or indirect holding or control exercised by a CIC in the other CIC.

The RBI also strengthened the risk management at CICs as it looked to curb excessive leveraging.

It said parent CIC in the group or CIC with the largest asset size, if there is no identifiable parent CIC in the group, will form a Group Risk Management Committee.

The RBI added that if a CIC makes any direct or indirect equity investment in another CIC, it will be deemed as a layer for the investing CIC.

In cases where there are more than two layers in a group, the apex bank said that they will have time till March 2023 to reorganise their business structure and adhere to this guideline.

The RBI also strengthened the risk management at CICs as it looked to curb excessive leveraging. It said parent CIC in the group or CIC with the largest asset size, if there is no identifiable parent CIC in the group, will form a "Group Risk Management Committee (GRMC)".