Overseas Investment by Core Investment Company (CIC)

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

           are not required to register with the Bank under 45IA of the RBI Act, 1934

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:

1. The CIC can issue guarantees / letter of comfort to the overseas subsidiary engaged in non-financial activity;
2. 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.
3. CICs shall comply with the regulations issued under FEMA, 1999 from time to time;
4. 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;
5. 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.