What changed
RBI modified the definition of 'adjusted net worth' to include 50% of unrealized appreciation on quoted investments and deduct any diminution in their book value. The definition of 'Core Investment Company' was also revised: it now requires holding at least 90% of net assets in group company investments, with equity in group companies at least 60% of net assets, and restricts trading to block sales for dilution. Additionally, 'market value of quoted investments' is now defined as the average of weekly highs and lows over 26 weeks preceding the balance sheet date.
What it means for you
CICs must recalculate adjusted net worth using the new formula, which could affect their capital adequacy and registration status. The stricter CIC definition may reclassify some entities as non-CICs, subjecting them to different NBFC regulations. Banks lending to CICs should reassess counterparty risk based on these revised metrics.
What you must do
- Review your CIC clients' compliance with the revised 90% net assets in group companies and 60% equity in group companies thresholds.
- Update internal models for calculating adjusted net worth to include 50% of unrealized appreciation and deduct any diminution in quoted investments.
- Ensure systemically important CICs have applied for RBI registration within the six-month window from the notification date.
- Advise CIC clients to reclassify their investment portfolios and trading activities to align with the new restrictions.
Who it affects
Core Investment Companies (CICs), Systemically important CICs (CICs-ND-SI), Banks and lenders with exposure to CICs, NBFC regulators and compliance teams
What is the deadline for systemically important CICs to register with RBI?
All systemically important CICs (CICs-ND-SI) must apply to RBI for a Certificate of Registration within six months from the date of the notification issued on August 12, 2010.