As per Master Direction on Core Investment Companies (Reserve Bank) Directions, 2016, CICs;
a) With an asset size of less than Rs. 100 Crore, irrespective of whether accessing public funds or not
b) With an asset size of Rs. 100 Crores and above and not accessing public funds
Investment in non-financial sector
Exempted CICs making overseas investment in
non-financial sector shall not require registration from the Bank and hence,
these Directions are not applicable to them. Further, a CIC-ND-SI need not
obtain prior approval from Department of Non-Banking Supervision (DNBS), RBI,
for overseas investment in non-financial sector. However it shall report to the
Regional Office of DNBS where it is registered within 30 days of such
investment in the stipulated format and at the prescribed periodicity.
The eligibility criteria for investments abroad
and other conditions prescribed for CICs are given in the following paragraphs:
Eligibility Criteria
i. The Adjusted Net Worth (ANW) of the CIC
shall not be less than 30% of its aggregate risk weighted assets on balance
sheet and risk adjusted value of off-balance sheet items as on the date of the
last audited balance sheet as at the end of the financial year. The CIC shall
continue to meet the requirement of minimum ANW, post overseas investment. For
this purpose, the risk weights applicable shall be as provided for in these
directions.
ii. The level of Net Non-Performing Assets of
the CIC shall not be more than 1% of the net advances as on the date of the
last audited balance sheet.
iii. The CIC shall generally be earning profit
continuously for the last three years and its performance shall be satisfactory
during the period of its existence.
General Conditions
i. Direct investment in activities prohibited
under FEMA shall not be permitted.
ii. The total overseas investment shall not
exceed 400% of the owned funds of the CIC.
iii. The total overseas investment in financial
sector shall not exceed 200% of its owned funds.
iv. Investment in financial sector shall be
only in regulated entities abroad.
v. Entities set up abroad or acquired abroad
shall be treated as wholly owned subsidiaries (WOS) /joint ventures (JV)
abroad.
vi. Overseas investments by a CIC in financial
/non-financial sector shall be restricted to its financial commitment. However
with regard to issuing guarantees/Letter of Comfort in this regard the
following shall be noted:
- The CIC can issue guarantees / letter of comfort to the overseas
subsidiary engaged in non-financial activity;
- CICs must ensure that investments made overseas shall not result in
creation of complex structures. In case the structure overseas requires a
Non-Operating Holding Company, there shall not be more than two tiers in
the structure. CICs having more than one non-operating holding company in
existence, in their investment structure, shall report the same to the
Bank for a review.
- CICs shall comply with the regulations issued under FEMA, 1999 from
time to time;
- An annual certificate from statutory auditors shall be submitted by
the CIC to the Regional Office of DNBS where it is registered, certifying
that it has fully complied with all the conditions stipulated under these
Guidelines for overseas investment. The certificate as on end March every
year shall be submitted by April 30 each year;
- If any serious adverse features come to the notice of the Bank, the
permission granted shall be withdrawn. All approvals for investment abroad
shall be subject to this condition.
Opening of WOS/JV Abroad by CICs
In the case of opening of a WOS/JV abroad by a
CIC, all the conditions as stipulated above shall be applicable. The NoC to be
issued by the Bank is independent of the overseas regulators’ approval process.
In addition, the following conditions shall apply to all CICs:
(a) The WOS/JV being established abroad shall
not be a shell company i.e "a company that is incorporated, but has no
significant assets or operations." However companies undertaking
activities such as financial consultancy and advisory services shall not be
considered as shell companies;
(b) The WOS/JV being established abroad by the
CIC shall not be used as a vehicle for raising resources for creating assets in
India for the Indian operations;
(c) In order to ensure compliance of the
provisions, the parent CIC shall obtain periodical reports/audit reports at
least quarterly about the business undertaken by the WOS/JV abroad and shall
make them available to the inspecting officials of the Bank;
(d) If the WOS/JV has not undertaken any
activity or such reports are not forthcoming, the approvals given for setting
up the WOS/JV abroad shall be reviewed;
(e) The WOS/JV shall make disclosure in its
Balance Sheet the amount of liability of the parent entity towards it and also
whether it is limited to equity / loan or if guarantees are given, the nature
of such guarantees and the amount involved;
(f) All the operations of the WOS/JV abroad
shall be subject to regulatory prescriptions of the host country.
