Annual Policy Statement for the Year 2010-11- 20th April 2010
Part B. Development and Regulatory Policies
VI. Institutional Developments
Non-Banking Financial Companies
Core Investment Companies (CICs): Regulatory Framework
111. The regulatory framework for NBFCs has evolved in the recent past with particular focus on inter-connectedness and systemic risk. Under this approach, access to public funds has been perceived as a systemic issue necessitating close regulation and monitoring of NBFCs, including systemically important non- deposit taking NBFCs (NBFCs-ND-SI). However, companies which have their assets predominantly as investments in shares not for trading but for holding stakes in group companies and also do not carry on any other financial activity [i.e., Core Investment Companies (CICs)] justifiably deserve a differential treatment in the regulatory prescription applicable to NBFCs-ND-SI. In order to rationalise the policy approach for CICs, and based on feedback received from such companies, it is proposed to:
treat CICs having an asset size of Rs.100 crore and above as systemically important core investment companies. Such companies will be required to register with the Reserve Bank.
112. The CICs fulfilling minimum capital and leverage criteria will be given exemption from maintenance of net owned fund and exposure norms applicable to NBFCs-ND-SI. They would be required to submit annual certificate from their statutory auditors regarding compliance with the prescribed norms. Draft guidelines will be placed on the Reserve Bank's website by April 30, 2010 for public comments.
Securitisation Companies/Reconstruction Companies set up under the SARFAESI Act, 2002: Changes in Regulations
113. The guidelines and instructions issued to the Securitisation Companies/ Reconstruction Companies (SCs/RCs) have been reviewed by the Reserve Bank in consultation with these companies. Accordingly, it is proposed to make the following modifications to the guidelines:
SCs/RCs can acquire the assets either in their own books or directly in the books of the trusts set up by them.
The period for realisation of assets acquired by SCs/RCs can be extended from five years to eight years by their Boards of Directors, subject to certain conditions. Asset/Security Receipts (SRs), which remain unresolved/not redeemed as at the end of five years or eight years, as the case may be, will henceforth be treated as loss assets.
It will be mandatory for SCs/RCs to invest an amount not less than 5 per cent of each class of SRs issued under a particular scheme and continue to hold the investments till the time all the SRs issued under that class are redeemed completely.
With a view to bringing transparency and market discipline in the functioning of SCs/RCs, additional disclosures relating to assets realised during the year, value of financial assets unresolved as at the end of the year, value of SRs pending redemption, among others, are being prescribed.
114. Detailed guidelines will be issued by April 30, 2010.
Guidelines on Change in or Takeover of the Management of the Business of the Borrower by the SCs/RCs
115. The draft guidelines on change in or takeover of the management of the business of the borrower by the SCs/RCs were placed on the Reserve Bank’s website for public comments. The guidelines define the eligibility conditions and the grounds based on which SCs/RCs may exercise the powers. The guidelines provide for setting up of an Independent Advisory Committee (IAC) to evaluate the proposals of the SCs/RCs regarding the change in or taking over of the management of the business of the borrowers. Based on the feedback received and recommendations of the External Advisory Committee, it is proposed:
to issue the final guidelines by April 30, 2010.
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