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Regulatory framework for Core Investment Companies (‘CICs’)
On 5 January 2011, the Reserve Bank of India ('RBI') had notified the CICs (RBI) Directions, 2011 ('CIC Directions') after amending the framework for CICs prescribed in its circular dated 12 August 2010. On 14 February 2011, the RBI released draft FAQs in connection with the CIC Directions with a view to clarify its position and address uncertainties arising from the CIC Directions. Taxand India summarise the framework established by the CIC Directions interspersed with the clarifications that the RBI has sought to provide in the form of the recently released draft FAQs.
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- The clarifications provided by the RBI would render the assets-income test redundant and will require all holding companies to register as a NBFC unless they satisfy the conditions prescribed for classification as CICs. The term 'holding company' is not defined. From the examples quoted by the RBI in the FAQs, one can only presume that a holding company is a company which satisfies the assets test but does not necessarily satisfy the income test. If that were not to be the case, every company holding an investment in a group company irrespective of the proportion such investment bears to the total assets, could be covered by the CIC Directions. Effectively, therefore, the RBI has possibly attempted to discard the income test for classification as a NBFC.
- Since this aspect is not expressly dealt with in the CIC Directions, the RBI should provide greater clarity by making necessary amendments to the CIC Directions and related NBFC regulations / the RBI Act, 1934