RBI/DoR(NBFC)/2016-17/39
Master Direction DoR(NBFC).PD.003/03.10.119/2016-17

August 25, 2016
(Updated as on October 11, 2024)
(Updated as on December 29, 2022)
(Updated as on October 05, 2021)
(Updated as on October 05, 2020)
(Updated as on November 22, 2019)
(Updated as on June 07, 2018)
(Updated as on November 09, 2017)

Master Direction - Core Investment Companies (Reserve Bank) Directions, 2016

In exercise of the powers conferred by sections 45JA, 45L and 45M of the Reserve Bank of India Act, 1934 (2 of 1934), and of all the powers enabling it in this behalf, the Reserve Bank of India (hereinafter also referred to as the Bank) being satisfied that it is necessary and expedient in the public interest and being satisfied that for the purpose of enabling the Bank to regulate the credit system to the advantage of the country to do so, hereby issues to every Core Investment Company, in supersession of the Notification No. DNBS.(PD).219/CGM(US)-2011 and the Notification No. DNBS. (PD).220/CGM(US)-2011 dated January 05, 2011, the Core Investment Companies (Reserve Bank) Directions, 2016 (the Directions) hereinafter specified.

(J. P. Sharma)
Chief General Manager

Index

Section – I
Introduction

Chapter – I
PRELIMINARY

1. Short Title and Commencement.

(1) These Directions shall be called the Core Investment Companies (Reserve Bank) Directions, 2016.

(2) These directions shall come into force with immediate effect.

2. Applicability

(1) These directions shall apply to every Core Investment Company (CIC), that is to say, a non-banking financial company carrying on the business of acquisition of shares and securities and which satisfies the following conditions as on the date of the last audited balance sheet:-

i. it holds not less than 90% of its net assets in the form of investment in equity shares, preference shares, bonds, debentures, debt or loans in group companies;

ii. its investments in the equity shares (including instruments compulsorily convertible into equity shares within a period not exceeding 10 years from the date of issue) in group companies and units of Infrastructure Investment Trusts (InvITs) only as sponsor constitute not less than 60% of its net assets as mentioned in clause (xviii) of sub-para (1) of paragraph 3 below;

iii. Provided that the exposure of such CICs towards InvITs shall be limited to their holdings as sponsors and shall not, at any point in time, exceed the minimum holding of units and tenor prescribed in this regard by SEBI (Infrastructure Investment Trusts) Regulations, 2014, as amended from time to time. It does not trade in its investments in shares, bonds, debentures, debt or loans in group companies except through block sale for the purpose of dilution or disinvestment;

iv. It does not carry on any other financial activity referred to in Section 45I(c) and 45I (f) of the Reserve Bank of India Act, 1934 except

(a) investment in

(i) bank deposits,

(ii) money market instruments, including money market mutual funds that make investments in debt/money market instruments with a maturity of up to 1 year.

(iii) government securities, and

(iv) bonds or debentures issued by group companies,

(b) granting of loans to group companies and

(c) issuing guarantees on behalf of group companies.

Note – 10% of net assets of CIC shall include real estate or other fixed assets which are required for its effective functioning, but shall not include other financial investments/loans in non-group companies.

(2) These directions shall not be applicable to a CIC which is an ‘Unregistered CIC’ as defined at para 6 of the directions.

(3) The Bank may, if it considers it necessary for avoiding any hardship for any other just and sufficient reason, grant extension of time to comply with or exempt any CIC from all or any of the provisions of these Directions either generally or for any specified period, subject to such conditions as the Bank may impose.

(4) These Directions consolidate the regulations as issued by Department of Regulation, Reserve Bank of India. However, any other Directions/guidelines issued by any other Department of the Bank, as applicable to a CIC shall be adhered to by it.

2A. ¹Regulatory Structure under Scale Based Regulation for NBFCs

(1) Regulatory structure for NBFCs shall comprise of four layers based on their size, activity, and perceived riskiness. NBFCs in the lowest layer shall be known as NBFC - Base Layer (NBFC-BL). NBFCs in middle layer and upper layer shall be known as NBFC - Middle Layer (NBFC-ML) and NBFC - Upper Layer (NBFC-UL) respectively. The Top Layer is ideally expected to be empty and shall be known as NBFC - Top Layer (NBFC-TL).

(2) CICs will be included in Middle Layer or the Upper Layer (and not in the Base layer), as the case may be.

(3) The Upper Layer shall comprise of those NBFCs which are specifically identified by the Reserve Bank as warranting enhanced regulatory requirement based on a set of parameters and scoring methodology as provided in the Annex I of Master Direction – Reserve Bank of India (Non-Banking Financial Company – Scale Based Regulation) Directions, 2023 (as amended from time to time). The top ten eligible NBFCs in terms of their asset size shall always reside in Upper Layer, irrespective of any other factor.

(4) The Top Layer can get populated, if the Reserve Bank is of the opinion that there is a substantial increase in the potential systemic risk from specific NBFCs in the Upper Layer. Such NBFCs shall move to Top Layer from the Upper Layer.

2B.²Progressive application of regulations

Regulatory instructions applicable to Middle Layer of CICs shall automatically be applicable to CICs residing in higher layers, unless stated otherwise.

Chapter - II
Definitions

3.(1) For the purpose of these Directions, unless the context otherwise requires, the terms herein shall bear the meanings assigned to them below —

(a) the aggregate, as appearing in the last audited balance sheet as at the end of the financial year, of Owned Funds as defined at (xxi) below.

(b) as increased by:-

(A) 50% of the unrealized appreciation in the book value of quoted investments as at the date of the last audited balance sheet as at the end of the financial year (such appreciation being calculated, as the excess of the aggregate market value of such investments over the book value of such investments); and

(B) the increase, if any, in the equity share capital since the date of the last audited balance sheet.

(c) as reduced by:-

(A) the amount representing any direct or indirect capital contribution made by one CIC in another CIC, to the extent such amount exceeds ten per cent of Owned Funds of the investing CIC;

(B) the amount of diminution in the aggregate book value of quoted investments (such diminution being calculated as the excess of the book value of such investments over the aggregate market value of such investments), and;

(C) the reduction, if any, in the equity share capital since the date of the last audited balance sheet.

Further, the deduction requirement as provided at para 3(c)(A) above shall be with immediate effect from August 13, 2020, for any investment made by a CIC in another CIC. In cases where the investment by a CIC in another CIC is already in excess of 10 percent as on this date, the CIC need not deduct the excess investment from owned funds for computation of its ANW till March 31, 2023.

(ii) "Bank" means the Reserve Bank of India constituted under Section 3 of the Reserve Bank of India Act, 1934.

(iii) “break up value” means the equity capital and reserves as reduced by intangible assets and revaluation reserves, divided by the number of equity shares of the investee company;

(iv) “carrying cost” means book value of the assets and interest accrued thereon but not received;

(v) “Companies in the Group” means an arrangement involving two or more entities related to each other through any of the following relationships, viz. Subsidiary – parent (defined in terms of AS 21), Joint venture (defined in terms of AS 27), Associate (defined in terms of AS 23), Promoter-promotee [as provided in the SEBI (Acquisition of Shares and Takeover) Regulations, 1997] for listed companies, a related party (defined in terms of AS 18) Common brand name, and investment in equity shares of 20% and above).

(vi) “Conduct of business regulations” means the directions issued by the Bank from time to time on Fair Practices Code and Know Your Customer guidelines.

(vii) "control" shall have the same meaning as is assigned to it under clause (e) of sub-regulation (1) of regulation 2 of Securities and Exchange Board of India (Substantial Acquisition of Shares and Takeovers) Regulations, 2011.

(viii) “Core Investment Company (CIC)” means a core investment company having total assets of not less than ₹100 crore either individually or in aggregate along with other CICs in the Group and which raises or holds public funds.

(ix) "current investment" means an investment which is by its nature readily realisable and is intended to be held for not more than one year from the date on which such investment is made;

(x) “customer interface” means interaction between the CIC and its customers while carrying on its business.

(xi) “earning value” means the value of an equity share computed by taking the average of profits after tax as reduced by the preference dividend and adjusted for extra-ordinary and non-recurring items, for the immediately preceding three years and further divided by the number of equity shares of the investee company and capitalised at the following rate:

(a) in case of predominantly manufacturing company, eight per cent;

(b) in case of predominantly trading company, ten per cent; and

(c) in case of any other company, including non-banking financial company, twelve per cent;

Note: If, an investee company is a loss making company, the earning value will be taken at zero;

(xii) “fair value” is the mean of the earning value and the break up value;

(xiii) “hybrid debt” means capital instrument which possesses certain characteristics of equity as well as of debt;

(xiv) “investment” means investment in shares, stock, bonds, debentures or securities issued by the Government or local authority or other marketable securities of a like nature.

(xv) “Infrastructure Investment Trust” means a trust registered under SEBI (Infrastructure Investment Trusts) Regulations, 2014 and as amended from time to time.

(xvi) “long term investment” means an investment other than a current investment;

(xvii) “market value of quoted investments” means the average of the weekly highs and lows of the closing price of the investments, on a recognized stock exchange where the investment is most actively traded, during the period of 26 weeks immediately preceding the end of the financial year at which date the last audited balance sheet is available.

(xviii) "net assets" means total assets excluding -

(i) cash and bank balances;

(ii) investment in money market instruments and money market mutual funds

(iii) advance payments of taxes; and

(iv) deferred tax payment.

(xix) “net asset value” means the latest declared net asset value by the mutual fund concerned in respect of that particular scheme;

(xx) “net book value” means:

(a) in the case of hire purchase asset, the aggregate of overdue and future instalments receivable as reduced by the balance of unmatured finance charges and further reduced by the provisions made as per paragraph 17(2)(i) of these Directions;

(b) in the case of leased asset, aggregate of capital portion of overdue lease rentals accounted as receivable and depreciated book value of the lease asset as adjusted by the balance of lease adjustment account.

(xxi) “outside liabilities” means total liabilities as appearing on the liabilities side of the balance sheet excluding 'paid up capital' and 'reserves and surplus', instruments compulsorily convertible into equity shares within a period not exceeding 10 years from the date of issue but including all forms of debt and obligations having the characteristics of debt, whether created by issue of hybrid instruments or otherwise, and value of guarantees issued, whether appearing on the balance sheet or not.

(xxii) “owned funds” means paid up equity capital, preference shares which are compulsorily convertible into equity, free reserves, balance in share premium account and capital reserves representing surplus arising out of sale proceeds of asset, excluding reserves created by revaluation of asset, as reduced by accumulated loss balance, book value of intangible assets and deferred revenue expenditure, if any;

(xxiii) “public deposit” for the purpose of these Directions shall have the same meaning as defined in the Non-Banking Financial Companies Acceptance of Public Deposits (Reserve Bank) Directions, 2016.

(xxiv) “Public funds" includes funds raised either directly or indirectly through public deposits, inter-corporate deposits, bank finance and all funds received from outside sources such as funds raised by issue of Commercial Papers, debentures etc. but excludes funds raised by issue of instruments compulsorily convertible into equity shares within a period not exceeding 10 years from the date of issue.

(xxv) “substantial interest” means holding of a beneficial interest by an individual or his spouse or minor child, whether singly or taken together in the shares of a company, the amount paid up on which exceeds ten per cent of the paid up capital of the company; or the capital subscribed by all the partners of a partnership firm;

(xxvi) “total assets” means the total of all assets appearing on the assets side of the balance sheet.

(2) Words or expressions used and not defined in these directions but defined in the Master Directions issued by the Bank, shall have the meanings respectively assigned to them under that Act or Directions. Any words or expressions used and not defined in these directions or in the Act or any of the Directions issued by the Bank, shall have the meanings respectively assigned to them under the Companies Act, 2013 (18 of 2013).

Chapter – III
Registration

4. Every CIC shall apply to the Bank for grant of Certificate of Registration, irrespective of any advice in the past, issued by the Bank, to the contrary.

5. Every CIC shall apply to the Bank for grant of Certificate of Registration within a period of three months from the date of becoming a CIC.

6. CICs (a) with an asset size of less than ₹100 crore, irrespective of whether accessing public funds or not and (b) with an asset size of ₹100 crore and above and not accessing public funds are not required to register with the Bank under Section 45IA of the RBI Act, 1934 in terms of notification No. DNBS.PD.221/CGM (US) 2011 dated January 5, 2011, and will be termed as ‘Unregistered CICs’. However, CICs may be required to issue guarantees or take on other contingent liabilities on behalf of their group entities. Before doing so, all CICs must ensure that they can meet the obligations thereunder, as and when they arise. In particular, Unregistered CICs must be in a position to do so without recourse to public funds in the event the liability devolves, else they shall approach the Bank for registration before accessing public funds.

If unregistered CICs with asset size above ₹100 crore access public funds without obtaining a Certificate of Registration (CoR) from the Bank, they shall be violating Core Investment Companies (Reserve Bank) Directions, 2016.

Group Structure

Section – II
Prudential Issues

Chapter – IV
Capital Requirements

8. Adjusted Net Worth of a CIC shall at no point of time 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.

Explanations

On balance sheet assets

(1) In these Directions, degrees of credit risk expressed as percentage weights have been assigned to balance sheet assets. Hence, the value of each asset / item requires to be multiplied by the relevant risk weights to arrive at risk adjusted value of assets. The aggregate shall be taken into account for reckoning the capital ratio. The risk weighted assets shall be calculated as the weighted aggregate of funded items as detailed hereunder:

Notes:

(i) Netting shall be done only in respect of assets where provisions for depreciation or for bad and doubtful debts have been made.

(ii) Assets which have been deducted from owned funds to arrive at net owned funds shall have a weight of ‘zero’.

(iii) While calculating the aggregate of funded exposure of a borrower for the purpose of assignment of risk weight, such CICs shall net off the amount of cash margin/caution money/security deposits (against which right to set-off is available) held as collateral against the advances out of the total outstanding exposure of the borrower.

(iv) The counterparty credit risk, arising out of exposure of CICs to CCIL on account of securities financing transactions (CBLOs) shall carry a risk weight of zero, as it is presumed that the CCP’s exposures to their counterparties are fully collateralised on a daily basis, thereby providing protection for the CCP’s credit risk exposures. The deposits / collaterals kept by CICs with CCIL shall attract a risk weight of 20%.

Off-balance sheet items

(2) In these Directions, degrees of credit risk exposure attached to off-balance sheet items have been expressed as percentage of credit conversion factor. Hence, the face value of each item requires to be first multiplied by the relevant conversion factor to arrive at risk adjusted value of off-balance sheet item. The aggregate shall be taken into account for reckoning the minimum capital ratio. This shall have to be again multiplied by the risk weight of 100. The risk adjusted value of the off-balance sheet items shall be calculated as per the credit conversion factors of non-funded items as detailed hereunder: -

Leverage Ratio

9. The outside liabilities of a CIC shall at no point of time exceed 2.5 times its Adjusted Net Worth as on the date of the last audited balance sheet as at the end of the financial year.

9A. ⁶Internal Capital Adequacy Assessment Process (ICAAP)

CICs are required to make a thorough internal assessment of the need for capital (as reflected in ANW and leverage ratio), commensurate with the risks in their business. This internal assessment shall be on similar lines as ICAAP prescribed for commercial banks under Pillar 2 (Master Circular – Basel III Capital Regulations, dated April 01, 2024, as amended from time to time). While Pillar 2 capital will not be insisted upon, CICs are required to make a realistic assessment of risks. Internal capital assessment shall factor in credit risk, market risk, operational risk and all other residual risks as per methodology to be determined internally. The methodology for internal assessment of capital shall be proportionate to the scale and complexity of operations as per their Board approved policy. The objective of ICAAP is to ensure availability of adequate capital to support all risks in business as also to encourage CICs to develop and use better internal risk management techniques for monitoring and managing their risks. This will facilitate an active dialogue between the supervisors and CICs on the assessment of risks and monitoring as well as mitigation of the same.

Chapter – V
Prudential Regulations

10. Prudential Regulations shall be applicable to CIC as defined in clause (viii) of sub-para (1) of paragraph 3 of these Directions.

11. Income recognition

(1) The income recognition shall be based on recognised accounting principles.

(2) Income including interest/ discount/ hire charges/ lease rentals or any other charges on NPA shall be recognised only when it is actually realised. Any such income recognised before the asset became non-performing and remaining unrealised shall be reversed.

12. Income from investments

(1) Income from dividend on shares of corporate bodies and units of mutual funds shall be taken into account on cash basis:

Provided that the income from dividend on shares of corporate bodies shall be taken into account on accrual basis when such dividend has been declared by the corporate body in its annual general meeting and the CIC’s right to receive payment is established.

(2) Income from bonds and debentures of corporate bodies and from Government securities/bonds shall be taken into account on accrual basis:

Provided that the interest rate on these instruments is pre-determined and interest is serviced regularly and is not in arrears.

(3) Income on securities of corporate bodies or public sector undertakings, the payment of interest and repayment of principal of which have been guaranteed by Central Government or a State Government shall be taken into account on accrual basis.

13. Accounting standards

14. Accounting of investments

(1) (i) The Board of Directors of every CIC shall frame investment policy for the company and shall implement the same;

(ii) The criteria to classify the investments into current and long term investments shall be spelt out by the Board of the company in the investment policy;

(iii) Investments in securities shall be classified into current and long term, at the time of making each investment;

(iv) In case of inter-class transfer –

(a) There shall be no such transfer on ad-hoc basis;

(b) such transfer, if warranted, shall be effected only at the beginning of each half year, on April 1 or October 1, with the approval of the Board;

(c) the investments shall be transferred scrip-wise, from current to long-term or vice-versa, at book value or market value, whichever is lower;

(d) the depreciation, if any, in each scrip shall be fully provided for and appreciation, if any, shall be ignored;

(e) the depreciation in one scrip shall not be set off against appreciation in another scrip, at the time of such inter-class transfer, even in respect of the scrips of the same category.

(2) (i) Quoted current investments shall, for the purposes of valuation, be grouped into the following categories, viz.

(a) equity shares,

(b) preference shares,

(c) debentures and bonds,

(d) Government securities including treasury bills,

(e) units of mutual fund, and

(f) others.

(3) Quoted current investments for each category shall be valued at cost or market value whichever is lower. For this purpose, the investments in each category shall be considered scrip-wise and the cost and market value aggregated for all investments in each category. If the aggregate market value for the category is less than the aggregate cost for that category, the net depreciation shall be provided for or charged to the profit and loss account. If the ag­gregate market value for the category exceeds the aggregate cost for the category, the net appreciation shall be ignored. Depreciation in one category of investments shall not be set off against appreciation in another category.

(4) Unquoted equity shares in the nature of current investments shall be valued at cost or breakup value, whichever is lower. However, CICs may substitute fair value for the breakup value of the shares, if considered necessary. Where the balance sheet of the investee company is not available for two years, such shares shall be valued at one Rupee only.

(5) Unquoted preference shares in the nature of current investments shall be valued at cost or face value, whichever is lower.

(6) Investments in unquoted Government securities or Government guaranteed bonds shall be valued at carrying cost.

(7) Unquoted investments in the units of mutual funds in the nature of current investments shall be valued at the net asset value declared by the mutual fund in respect of each particular scheme.

(8) Commercial papers shall be valued at carrying cost.

Note: Unquoted debentures shall be treated as term loans or other type of credit facilities depending upon the tenure of such debentures for the purpose of income recognition and asset classification.

15. Need for policy on demand/ call loans

(1) The Board of Directors of every CIC granting/intending to grant demand/call loans shall frame a policy for the company and implement the same.

(2) Such policy shall, inter alia, stipulate the following,-

(i) A cut-off date within which the repayment of demand or call loan shall be demanded or called up;

(ii) The sanctioning authority shall, record specific reasons in writing at the time of sanctioning demand or call loan, if the cut-off date for demanding or calling up such loan is stipulated beyond a period of one year from the date of sanction;

(iii) The rate of interest which shall be payable on such loans;

(iv) Interest on such loans, as stipulated shall be payable either at monthly or quarterly rests;

(v) The sanctioning authority shall, record specific reasons in writing at the time of sanctioning demand or call loan, if no interest is stipulated or a moratorium is granted for any period;

(vi) A cut-off date, for review of performance of the loan, not exceeding six months commencing from the date of sanction;

(vii) Such demand or call loans shall not be renewed unless the periodical review has shown satisfactory compliance with the terms of sanction.

16. Asset classification

(1) Every CIC shall, after taking into account the degree of well-defined credit weaknesses and extent of dependence on collateral security for realisation, classify its lease/hire purchase assets, loans and advances and any other forms of credit into the following classes, namely:

1. Standard assets;

2. Sub-standard assets;

3. Doubtful assets; and

4. Loss assets.

(2) The class of assets referred to above shall not be upgraded merely as a result of rescheduling, unless it satisfies the conditions required for the upgradation.

(3) Deleted

(4) For CICs the asset classification norms shall be as follows:

(i) “standard asset” shall mean the assets in respect of which, no default in repayment of principal or payment of interest is perceived and which does not disclose any problem or carry more than normal risk attached to the business;

(ii) “sub-standard asset” shall mean:

(a) an asset which has been classified as non-performing asset for a period not exceeding 12 months;

(b) an asset where the terms of the agreement regarding interest and / or principal have been renegotiated or rescheduled or restructured after commencement of operations, until the expiry of one year of satisfactory performance under the renegotiated or rescheduled or restructured terms:

(iii) Doubtful asset shall mean:

1. a term loan, or

2. a lease asset, or

3. a hire purchase asset, or

4. any other asset,

which remains a sub-standard asset ‘exceeding 12 months’

(iv) loss asset shall mean:

(a) an asset which has been identified as loss asset by the CIC or its internal or external auditor or by the Bank during its inspection, to the extent it is not written off by it; and

(b) an asset which is adversely affected by a potential threat of non-recoverability due to either erosion in the value of security or non-availability of security or due to any fraudulent act or omission on the part of the borrower

(v) Non-Performing Asset (referred to in these Directions as “NPA”) shall mean:

(a) an asset, in respect of which, interest has remained overdue for a period of more than 90 days;

(b) a term loan inclusive of unpaid interest, when the instalment is overdue for a period of more than 90 days or on which interest amount remained overdue for a period of more than 90 days;

(c) a demand or call loan, which remained overdue for more than 90 days from the date of demand or call or on which interest amount remained overdue for a period of more than 90 days;

(d) a bill which remains overdue for a period of more than 90 days;

(e) the interest in respect of a debt or the income on receivables under the head ‘other current assets’ in the nature of short term loans/advances, which facility remained overdue for a period of more than 90 days;

(f) any dues on account of sale of assets or services rendered or reimbursement of expenses incurred, which remained overdue for a period of more than 90 days;

(g) the lease rental and hire purchase instalment, which has become overdue for a period of more than 90 days;

(h) in respect of loans, advances and other credit facilities (including bills purchased and discounted), the balance outstanding under the credit facilities (including accrued interest) made available to the same borrower/beneficiary when any of the above credit facilities becomes non-performing asset:

Provided that in the case of lease and hire purchase transactions, a CIC, shall classify each such account on the basis of its record of recovery.

17. Provisioning requirements

Every CIC shall, after taking into account the time lag between an account becoming non-performing, its recognition as such, the realisation of the security and the erosion over time in the value of security charged, make provision against sub-standard assets, doubtful assets and loss assets as provided hereunder:-

Loans, advances and other credit facilities including bills purchased and discounted-

(1) The provisioning requirement in respect of loans, advances and other credit facilities including bills purchased and discounted shall be as under:

(2) Lease and hire purchase assets - The provisioning requirements in respect of hire purchase and leased assets shall be as under:

(i) Hire purchase assets - In respect of hire purchase assets, the total dues (overdue and future instalments taken together) as reduced by

(a) the finance charges not credited to the profit and loss account and carried forward as unma­tured finance charges; and

(b) the depreciated value of the underlying asset, shall be provided for.

Explanation: For the purpose of this paragraph,

(1) the depreciat­ed value of the asset shall be notionally computed as the original cost of the asset to be reduced by deprecia­tion at the rate of twenty per cent per annum on a straight line method; and

(2) in the case of second hand asset, the original cost shall be the actual cost incurred for acquisition of such second hand asset.

Additional provision for hire purchase and leased assets

(ii) In respect of hire purchase and leased assets, additional provision shall be made as under:

(iii) On expiry of a period of 12 months after the due date of the last instalment of hire purchase/leased asset, the entire net book value shall be fully provided for.

Notes:

(1) The amount of caution money/margin money or security deposits kept by the borrower with the CIC in pursuance of the hire purchase agreement shall be deducted against the provisions stipulated under clause (i) above, if not already taken into account while arriving at the equated monthly instalments under the agreement. The value of any other security available in pursuance to the hire purchase agreement shall be deducted only against the provisions stipulated under clause (ii) above.

(2) The amount of security deposits kept by the borrower with the CIC in pursuance to the lease agreement together with the value of any other security available in pursuance to the lease agreement shall be deducted only against the provisions stipulated under clause (ii) above.

(3) It is clarified that income recognition on and provisioning against NPAs are two different aspects of prudential norms and provisions as per the norms are required to be made on NPAs on total outstanding balances including the depreciated book value of the leased asset under reference after adjusting the balance, if any, in the lease adjustment account. The fact that income on an NPA has not been recognised shall not be taken as reason for not making provision.

(4) An asset which has been renegotiated or rescheduled as referred to in paragraph 16.3(ii)(b) and 16.4(ii)(b) of these Directions shall be a sub-standard asset or continue to remain in the same category in which it was prior to its renegotiation or reschedulement as a doubtful asset or a loss asset as the case may be. Necessary provision shall be made as applicable to such asset till it is upgraded.

(5) The balance sheet to be prepared by a CIC shall be in accordance with the provisions contained in paragraph 4 of Annex V of this Direction.

(6) All financial leases written on or after April 1, 2001 shall attract the provisioning requirements as applicable to hire purchase assets.

18. Provision for Standard Assets

(1) Deleted

(2) CICs in Middle Layer shall make provision for standard assets at 0.40 per cent of the outstanding which shall not be reckoned for arriving at net NPAs. The provision towards standard assets shall not be netted from gross advances but shall be shown separately as ‘Contingent Provisions against Standard Assets’ in the balance sheet.

19. Guidelines on Liquidity Risk Management Framework

Every CIC shall adhere to the set of liquidity risk management guidelines as detailed in Annex I of these Directions, as applicable. It will be the responsibility of the Board of each CIC to ensure that the guidelines are adhered to. The internal controls required to be put in place by CICs as per these guidelines shall be subject to supervisory review.

20. Accounting year

Every CIC shall prepare its balance sheet and profit and loss account as on March 31 every year. Whenever a CIC intends to extend the date of its balance sheet as per provisions of the Companies Act, it shall take prior approval of the Bank before approaching the Registrar of Companies for this purpose.

Further, even in cases where the Bank and the Registrar of Companies grant extension of time, a CIC shall furnish to the Bank a proforma balance sheet (unaudited) as on March 31 of the year and the statutory returns due on the said date. Every applicable CIC (whether listed or not) shall finalise its balance sheet within a period of 3 months from the date to which it pertains or any such date as notified by SEBI for submission of financial results by listed entities.

21. Schedule to the balance sheet

Every CIC shall append to its balance sheet prescribed under the Companies Act, 2013, the particulars in the schedule as set out in Annex II.

22. Transactions in Government securities

Every CIC shall undertake transactions in Government securities through its gilt account or its demat account or any other account, as permitted by the Reserve Bank.

23. Loans against CICs own shares prohibited

No CIC shall lend against its own shares.

24. Information with respect to change of address, directors, auditors, etc. to be submitted

Every CIC shall communicate, not later than one month from the occurrence of any change in:

1. the complete postal address, telephone number/s and fax number/s of the registered/corporate office;

2. the names and residential addresses of the directors of the company;

3. the names and the official designations of its principal officers;

4. the names and office address of the auditors of the company; and

5. the specimen signatures of the officers authorised to sign on behalf of the company;

to the Regional Office of the Department of Supervision of the Bank under whose jurisdiction the CIC is registered.

25. CICs not to be partners in partnership firms

(1) No CIC shall contribute to the capital of a partnership firm or become a partner of such firm.

(2) CICs which had already contributed to the capital of a partnership firm or was a partner of a partnership firm shall seek early retirement from the partnership firm.

(3) In this connection it is further clarified that;

a. Partnership firms mentioned above shall also include Limited Liability Partnerships (LLPs).

b. Further, the aforesaid prohibition shall also be applicable with respect to Association of persons; these being similar in nature to partnership firms

26. Loans against security of shares

CIC lending against the collateral of listed shares shall,

(i) maintain a Loan to Value (LTV) ratio of 50% for loans granted against the collateral of shares. LTV ratio of 50% is required to be maintained at all times. Any shortfall in the maintenance of the 50% LTV occurring on account of movement in the share prices shall be made good within 7 working days

(ii) in case where lending is being done for investment in capital markets, accept only Group 1 securities (specified in SMD/Policy/Cir-9/2003 dated March 11, 2003 as amended from time to time, issued by SEBI) as collateral for loans of value more than 5 lakh, subject to review by the Bank.

(iii) report on-line to stock exchanges on a quarterly basis, information on the shares pledged in their favour, by borrowers for availing loans in format as given in Annex III.

26A. ⁹Investments in Alternative Investment Funds (AIFs)

(i) CICs may make investments in units of AIFs as part of their regular investment operations. However, certain transactions involving AIFs have raised regulatory concerns. These transactions entail substitution of direct loan exposure to borrowers, with indirect exposure through investments in units of AIFs. In order to address concerns relating to possible evergreening through this route, it is advised as under:

(a) CICs shall not make investments in any scheme of AIFs which has downstream investments either directly or indirectly in their debtor company. Such downstream investments shall exclude investments in equity shares of the debtor company of the CIC, but shall include all other investments, including investment in hybrid instruments.

Explanation: For this purpose, the debtor company shall mean any company to which the CIC currently has or previously had a loan or investment exposure anytime during the preceding 12 months.

(b) If an AIF scheme, in which CIC is already an investor, makes a downstream investment in any such debtor company, then the CIC shall liquidate its investment in the scheme within 30 days from the date of such downstream investment by the AIF. CICs shall forthwith arrange to advise the AIFs suitably in the matter.

(c) In case CICs are not able to liquidate their investments within the above-prescribed time limit, they shall make 100 percent provision on such investments. Provisioning shall be required only to the extent of investment by the CIC in the AIF scheme which is further invested by the AIF in the debtor company, and not on the entire investment of the CIC in the AIF scheme.

(ii) In addition, investment by CICs in the subordinated units of any AIF scheme with a ‘priority distribution model’ shall be subject to full deduction from ANW of CICs. Reference to investment in subordinated units of AIF Scheme includes all forms of subordinated exposures, including investment in the nature of sponsor units.

Explanation: ‘Priority distribution model’ shall have the same meaning as specified in the SEBI circular SEBI/HO/AFD-1/PoD/P/CIR/2022/157 dated November 23, 2022.

Instructions under clause (ii) above shall only be applicable in cases where the AIF does not have any downstream investment in a debtor company of the CIC. If the CIC has investment in subordinated units of an AIF scheme, which also has downstream exposure to the debtor company, then the CIC shall be required to comply with clause (i) above.

(iii) Investments by CICs in AIFs through intermediaries such as fund of funds or mutual funds are not included in the scope of the paragraph 26A of this Directions.

Section – III
Risk Management and Governance Issues

Chapter VI
Acquisition / Transfer of Control

27. (1) A CIC as defined in clause (viii) of sub-para (1) of paragraph 3 of these Directions, shall require prior written permission of the Bank for the following:

(i) any takeover or acquisition of control of CIC, which may or may not result in change of management;

(ii) any change in the shareholding of CIC, including progressive increases over time, which results in acquisition / transfer of shareholding of 26 per cent or more of the paid up equity capital of the CIC.

Provided that, prior approval shall not be required in case of any shareholding going beyond 26% due to buyback of shares / reduction in capital where it has approval of a competent Court. The same is to be reported to the Bank not later than one month from its occurrence;

(iii) any change in the management of the CIC which results in change in more than 30 per cent of the directors, excluding independent directors.

Provided that, prior approval shall not be required in case of directors who get re-elected on retirement by rotation.

(2) Notwithstanding clause (i), CICs shall continue to inform the Bank regarding any change in their directors / management not later than one month from the occurrence of any change.

28. Application for prior approval

(1) CICs shall submit an application, in the company letter head, for obtaining prior approval of the Bank as above, along with the following documents:

(i) Information about the proposed directors / shareholders as per the Annex IV;

(ii) Sources of funds of the proposed shareholders acquiring the shares in the CIC;

(iii) Declaration by the proposed directors / shareholders that they are not associated with any unincorporated body that is accepting deposits;

(iv) Declaration by the proposed directors / shareholders that they are not associated with any company, the application for Certificate of Registration (CoR) of which has been rejected by the Bank;

(v) Declaration by the proposed directors / shareholders that there is no criminal case, including for offence under Section 138 of the Negotiable Instruments Act, against them; and

(vi) Bankers' Report on the proposed directors / shareholders.

(2) Applications in this regard shall be submitted to the Regional Office of the Department of Supervision in whose jurisdiction the Registered Office of the CIC is located.

29. Requirement of Prior Public Notice about change in control

(1) A public notice of at least 30 days shall be given before effecting the sale of, or transfer of the ownership by sale of shares, or transfer of control, whether with or without sale of shares. Such public notice shall be given by the CIC and also by the other party or jointly by the parties concerned, after obtaining the prior permission of the Bank.

(2) The public notice shall indicate the intention to sell or transfer ownership / control, the particulars of transferee and the reasons for such sale or transfer of ownership / control. The notice shall be published in at least one leading national and in one leading local (covering the place of registered office) vernacular newspaper.

30. (1) Corporate governance requirements will be as per the Companies Act, 2013. Disclosure requirements will be applicable to CICs as per the guidelines contained at Annex V of these Directions. CICs are required to make disclosures in their financial statements in accordance with existing prudential guidelines, applicable accounting standards, laws and regulations. The disclosures outlined in Annex V are in addition to and not in substitution of the disclosure requirements specified under other laws, regulations, or accounting and financial reporting standards. It may be noted that disclosure requirements applicable to lower layers of CICs will be applicable to CICs in higher layers. The guidelines indicate basic minimum requirements and CICs shall strive to achieve higher standards of governance and disclosure, especially if such disclosures significantly aid in understanding of the financial position and performance. CICs may omit those line items/disclosures from Annex V which are not applicable/not permitted or with no exposure/no transaction both in the current year and previous year. It may be noted that mere mention of an activity, transaction or item in the disclosure template does not imply that it is permitted, and CICs shall refer to the extant statutory and regulatory requirements while determining the permissibility or otherwise of an activity or transaction. Further, CICs shall include comparative information for narrative and descriptive information, if it is relevant to understanding the current period’s financial statements.

(2) CICs shall ensure that a policy is put in place with the approval of the Board for ascertaining the ‘fit and proper’ status of directors not only at the time of appointment, but also on a continuous basis.

(3) All CICs shall

(i) ensure that a policy is put in place with the approval of the Board of Directors for ascertaining the fit and proper criteria of the directors at the time of appointment, and on a continuing basis. The policy on the fit and proper criteria shall be on the lines of the Guidelines contained in Annex VI;

(ii) obtain a declaration and undertaking from the directors giving additional information on the directors. The declaration and undertaking shall be on the lines of the format given in Annex VII;

(iii) obtain a Deed of Covenant signed by the directors, which shall be in the format as given in Annex VIII;

(iv) furnish to the Bank a quarterly statement on change of directors, and a certificate from the Managing Director of the CIC that fit and proper criteria in selection of the directors has been followed. The statement must reach the Regional Office of the Department of Supervision of the Bank where the company is registered, within 15 days of the close of the respective quarter. The statement submitted by applicable CIC for the quarter ending March 31, shall be certified by the auditors.

Provided that the Bank, if it deems fit and in public interest, reserves the right to examine the fit and proper criteria of directors of any CIC irrespective of the asset size of such CIC.

30A. ¹⁰Experience of the Board

Considering the need for professional experience in managing the affairs of the CICs, at least one of the directors shall have relevant experience of having worked in a bank/ NBFC.

30B. Key Managerial Personnel

Except for directorship in a subsidiary, Key Managerial Personnel¹¹ of the CICs shall not hold any office (including directorships) in any other NBFC-ML or NBFC-UL. A timeline of two years is provided with effect from October 01, 2022 to ensure compliance with these norms. It is clarified that they can assume directorship in NBFC-BL.

30C. Independent Director

Within the permissible limits in terms of Companies Act, 2013, an independent director of the CICs shall not be on the Board of more than three NBFCs (NBFC-ML or NBFC-UL) at the same time. Further, the Board of the CICs shall ensure that there is no conflict arising out of their independent directors being on the Board of another NBFC at the same time. A timeline of two years is provided with effect from October 01, 2022 to ensure compliance with these norms. There shall be no restriction to directorship on the Boards of NBFCs-BL, subject to provisions of Companies Act, 2013.

30D. ¹²Guidelines on Compensation of Key Managerial Personnel¹³ (KMP) and Senior Management¹⁴ in CICs

(1) In order to address issues arising out of excessive risk taking caused by misaligned compensation packages, CICs (except Government owned CICs) are required to put in place a Board approved compensation policy. The policy shall at the minimum include

1. constitution of a Remuneration Committee,

2. principles for fixed/variable pay structures, and

3. malus/clawback provisions.

The Board of CICs should delineate the role of various committees, including Nomination and Remuneration Committee (NRC). Further, NBFCs shall comply with the guidelines furnished in Annex VIII-A of these Directions.

(2) The guidelines are intended only for providing broad guidance to CICs and their NRCs in formulating their compensation policy. While formulating the compensation policy, it has to be ensured that all statutory mandates and the rules and directions issued under them are fully complied with.

(3) These guidelines shall be for fixing the compensation policy of Key Managerial Personnel and members of senior management of all CICs.

31B. ¹⁵Risk Management Committee

In order that the Board is able to focus on risk management, CICs shall constitute a Risk Management Committee (RMC) either at the Board or executive level. The RMC shall be responsible for evaluating the overall risks faced by the CICs including liquidity risk and shall report to the Board.

(iii) Members shall have adequate and commensurate experience in risk management practices.

32A. Guidance Note on Operational Risk Management and Operational Resilience

CICs may make use of the ‘Guidance Note on Operational Risk Management and Operational Resilience’ dated April 30, 2024, as amended from time to time.

Section III-A
Regulations applicable for CICs in Upper Layer

32B. Regulatory instructions specified in Chapters XIII (excluding paragraph 107), XV and XVI of Master Direction – Reserve Bank of India (Non-Banking Financial Company – Scale Based Regulation) Directions, 2023 (as amended from time to time) shall be mutatis mutandis applicable to CICs in Upper Layer.

Section III-B
Regulations applicable for CICs in Top Layer

32C. CICs falling in the Top Layer of the regulatory structure shall, inter alia, be subject to higher capital charge. Such higher requirements shall be specifically communicated to the CIC at the time of its classification in the Top Layer. There will be enhanced and intensive supervisory engagement with these CICs.

Section – IV
Miscellaneous

Chapter- IX
Overseas Investment

33. These directions are in addition to those prescribed by Foreign Exchange Department for overseas investment.

34. Investment in ¹⁶financial sector overseas

35. Investment in non-financial sector

(2) The eligibility criteria for investments abroad and other conditions prescribed for CICs are given in the following paragraphs

36. Eligibility Criteria

(1) 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.

(2) 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.

(3) 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.

37. General Conditions

(1) Direct investment in activities prohibited under FEMA shall not be permitted.

(2) The total overseas investment shall not exceed 400% of the owned funds of the CIC.

(3) The total overseas investment in financial sector shall not exceed 200% of its owned funds.

(4) Investment in financial sector shall be only in regulated entities abroad.

(5) Entities set up abroad or acquired abroad shall be treated as wholly owned subsidiaries (WOS) /joint ventures (JV) abroad.

(6) 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:

(i) The CIC can issue guarantees / letter of comfort to the overseas subsidiary engaged in non-financial activity;

(ii) 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.

(iii) CICs shall comply with the regulations issued under FEMA, 1999 from time to time;

(iv) An annual certificate from statutory auditors shall be submitted by the CIC to the Regional Office of DoS 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;

(v) 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.

38. Specific Conditions

(1) Opening of Branches

As CICs are non-operating entities, they shall not, in the normal course, be allowed to open branches overseas.

(2) 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:

(i) 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;

(ii) 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;

(iii) 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;

(iv) 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;

(v) 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;

(vi) All the operations of the WOS/JV abroad shall be subject to regulatory prescriptions of the host country.

(3) Opening of Representative Offices Abroad by CICs

(i) CICs shall need prior approval from the DoS, RBI for opening representative offices abroad. The representative offices can be set up abroad for the purpose of liaison work, undertaking market study and research but not for undertaking any activity which involves outlay of funds. The representative offices shall also comply with regulations, if any, in this regard stipulated by a regulator in the host country. As it is not envisaged that such offices would be carrying on any activity other than liaison work, no line of credit shall be extended.

(ii) The parent CICs shall obtain periodical reports about the business undertaken by the representative offices abroad. If the representative offices have not undertaken any activity or such reports are not forthcoming, the Bank may advise the CIC to wind up the establishment.

Chapter - X
Miscellaneous Instructions

39. Participation in Currency Options/Futures

CICs shall participate in the designated currency options / futures exchanges recognized by SEBI as clients, subject to RBI (Foreign Exchange Department) guidelines in the matter, only for the purpose of hedging their underlying forex exposures. Disclosures shall be made in the balance sheet relating to transactions undertaken in the currency futures market, in accordance with the guidelines issued by SEBI.

40. Operative instructions relating to relaxation / modification in Ready Forward Contracts, Settlement of Government Securities Transactions and Sale of securities allotted in Primary Issues

All CICs shall follow the guidelines on transactions in Government Securities as given in the circular IDMD.PDRS.05/10.02.01/2003-04 dated March 29, 2004 and IDMD.PDRS.4777, 4779 & 4783/10.02.01/2004-05 all dated May 11, 2005 as amended from time to time. In case of doubt they may refer to IDMD.

41. Introduction of Interest Rate Futures

CICs shall participate in the designated interest rate futures(IRF) exchanges recognized by SEBI, as clients, subject to RBI / SEBI guidelines in the matter, for the purpose of hedging their underlying exposures. CICs participating in IRF exchanges shall submit the data in this regard half yearly, in the prescribed format, to the Regional Office of the Department of Supervision in whose jurisdiction their company is registered, within a period of one month from the close of the half year.

42. Raising Money through Private Placement of Debentures etc. by CICs

All CICs shall follow the guidelines on private placement of Non-Convertible Debentures (NCDs) (given in Annex IX) for compliance. It may be noted that the provisions of Companies Act, 2013 and Rules issued there under shall be applicable wherever not contradictory.

43. Applicability of Know Your Customer (KYC) Direction, 2016

44. Rounding off transactions to the Nearest Rupee by CICs

CICs shall ensure that all transactions, including payment of interest on deposits/ charging of interest on advances, are rounded off to the nearest rupee, i.e. fractions of 50 paise and above shall be rounded off to the next higher rupee and fractions of less than 50 paise should be ignored. Further, they shall also ensure that cheques / drafts issued by clients containing fractions of a rupee are not rejected by them.

45. Ratings for CICs

CICs also issue financial products like Commercial Paper, Debentures etc. to which rating is assigned by rating agencies. The ratings assigned to such products may undergo changes for various reasons ascribed to by the rating agencies. All CICs shall furnish the information about downgrading / upgrading of assigned rating of any financial product issued by them, within fifteen days of such a change in rating, to the Regional Office of the Bank under whose jurisdiction their registered office is functioning.

46. Guidelines on Investment in Insurance - Entry into insurance business

The aspirant CICs shall make an application along with necessary particulars duly certified by their statutory auditors to the Regional Office of Department of Supervision under whose jurisdiction the registered office of the CIC is situated. Any CIC registered with the Bank which satisfies the eligibility criteria given below may be permitted to set up a joint venture company for undertaking insurance business with risk participation, subject to safeguards. No ceiling is prescribed for CICs in their investment in an insurance joint venture. The maximum equity contribution such a CIC can hold in the joint venture company shall be as per IRDA approval.

(1) The eligibility criteria for joint venture participant shall be as under, as per the latest available audited balance sheet.

1. The owned funds of the CIC shall not be less than ₹500 crore;

2. The level of net non-performing assets shall be not more than 1% of the total advances;

3. The CIC shall have registered net profit continuously for three consecutive years;

4. The track record of the performance of the subsidiaries, if any, of the concerned CIC shall be satisfactory;

5. The CIC shall comply with all applicable regulations including these Directions. Thus, CICs are required to maintain adjusted net worth which shall be not less than 30% of aggregate risk weighted assets on balance sheet and risk adjusted value of off-balance sheet items.

(2) No CIC shall be allowed to conduct such business departmentally. Further, a NBFC (in its group / outside the group) shall normally not be allowed to join an insurance company on risk participation basis and hence shall not provide direct or indirect financial support to the insurance venture.

(3) Within the group, CICs shall be permitted to invest up to 100% of the equity of the insurance company either on a solo basis or in joint venture with other non-financial entities in the group. This shall ensure that only the CIC either on a solo basis or in a joint venture with the group company is exposed to insurance risk and the NBFC within the group is ring-fenced from such risk.

(4) In case where a foreign partner contributes 26 per cent of the equity with the approval of Insurance Regulatory and Development Authority/Foreign Investment Promotion Board, more than one CIC may be allowed to participate in the equity of the insurance joint venture. As such participants shall also assume insurance risk, only those CICs which satisfy the criteria given Paragraph 44(1) above, shall be eligible.

(5) CICs shall not enter into insurance business as agents. CICs that wish to participate in insurance business as investors or on risk participation basis shall be required to obtain prior approval of the Bank. The Bank will give permission on case to case basis keeping in view all relevant factors. It shall be ensured that risks involved in insurance business do not get transferred to the CIC.

Notes:

(1) Holding of equity by a promoter CIC in an insurance company or investment in insurance business shall be subject to compliance with any rules and regulations laid down by the IRDA/Central Government. This shall include compliance with Section 6AA of the Insurance Act as amended by the IRDA Act, 1999, for divestment of equity in excess of 26 per cent of the paid up capital within a prescribed period of time.

(2) CICs exempted from registration with the Bank in terms of these Directions, shall not require prior approval provided they fulfill all the necessary conditions of exemption.

47. Managing Risks and Code of Conduct in Outsourcing of Financial Services by CICs

CICs shall conduct a self-assessment of their existing outsourcing arrangements and bring these in line with the directions as provided at Annex X.

48. Technical Specifications for all participants of the Account Aggregator ecosystem

The NBFC-Account Aggregator (AA) consolidates financial information, as defined in para 3.(1)(ix) of Master Direction- Non-Banking Financial Company - Account Aggregator (Reserve Bank) Directions, 2016, of a customer held with different financial entities, spread across financial sector regulators adopting different IT systems and interfaces. In order to ensure that such movement of data is secured, duly authorised, smooth and seamless, it has been decided to put in place a set of core technical specifications for the participants of the AA ecosystem. Reserve Bank Information Technology Private Limited (ReBIT), has framed these specifications and published the same on its website (www.rebit.org.in).

Every CIC acting either as Financial Information Providers¹⁷ or Financial Information Users are expected to adopt the technical specifications published by ReBIT, as updated from time to time.

(2) In terms of sub-sections (1) and (2) of section 17 of the Credit Information Companies (Regulation) Act, 2005, a credit information company may require its members to furnish credit information as it may deem necessary in accordance with the provisions of the Credit Information Companies (Regulation) Act (CICRA, 2005) and every such credit institution has to provide the required information to that credit information company. In terms of Regulation 10(a) (ii) of the Credit Information Companies Regulations, 2006, every CIC shall:

(a) keep the credit information maintained by it, updated regularly on a monthly basis or at such shorter intervals as mutually agreed upon between the credit institution and the credit information company;

(aa) With effective from January 1, 2025, keep the credit information collected/maintained by it updated regularly on a fortnightly basis (i.e., as on 15th and last day of the respective month) or at such shorter intervals as mutually agreed upon between CIC and the credit information company. The fortnightly submission of credit information by CICs to the credit information companies shall be ensured within seven calendar days of the relevant reporting fortnight. However, CICs are encouraged to give effect to these instructions as expeditiously as feasible but not later than January 1, 2025. CICs that contravene or default in adherence to the above directions shall be liable for penal action as per the provisions of CICRA, 2005.

(b) take all such steps which may be necessary to ensure that the credit information furnished by it, is update, accurate and complete.

50. Data Format for Furnishing of Credit Information to Credit Information Companies and other Regulatory Measures

(1) All CICs shall comply with the instructions contained in the Bank’s circular DBOD.No.CID.BC.127/20.16.056/2013-14 dated June 27, 2014 and as amended from time to time; laying down instructions regarding the following:

(i) Creating Awareness about Credit Information Report (CIR);

(ii) Usage of CIR in all Lending Decisions and Account Opening;

(iii) Populating Commercial Data Records in Databases of all Credit Information Companies;

(iv) Standardisation of Data Format;

(v) Constitution of a Technical Working Group;

(vi) Process of Rectification of Rejected Data;

(vii) Determining Data Quality Index;

(viii) Calibration of Credit Score and Standardising Format of CIR;

(ix) Best practices for Banks/FIs.

(2) CICs shall comply with the directive issued under CICRA Sec 11(1) by the Bank vide DBR.No.CID.BC.59/20.16.056/2014-15 dated January 15, 2015.

(3) CICs shall comply with the directions on Data Quality Index issued vide circular DoR.FIN.REC.39/20.16.056/2023-24 dated September 20, 2023, as amended from time to time.

(4) CICs shall comply with the directions on compensation to customers for delayed updation/ rectification of credit information issued vide circular DoR.FIN.REC.48/20.16.003/2023-24 dated October 26, 2023, as amended from time to time.

(5) CICs shall comply with the directions on strengthening of customer service rendered by Credit Information Companies and Credit Institutions issued vide circular DoR.FIN.REC.49/20.16.003/2023-24 dated October 26, 2023, as amended from time to time.

50A. Treatment of Wilful Defaulters and Large Defaulters

CICs shall adhere to the provisions contained in the circular ‘Treatment of Wilful Defaulters and Large Defaulters’ dated July 30, 2024 on procedures for classification of borrowers as wilful defaulters, large defaulters and related aspects.

Chapter - XI
Reporting Requirements

51. The reporting requirements in respect of CICs as prescribed by Department of Supervision shall be adhered to.

Chapter -XII
Interpretations

53. For the purpose of giving effect to the provisions of these Directions, the Bank may, if it considers necessary, issue necessary clarifications in respect of any matter covered herein and the interpretation of any provision of these Directions given by the Bank shall be final and binding on all the parties concerned. Violation of these directions shall invite penal action under the provisions of Act. Further, these provisions shall be in addition to, and not in derogation of the provisions of any other laws, rules, regulations or directions, for the time being in force.

Chapter - XIII
Repeal Provisions

54. With the issue of these directions, the instructions / guidelines contained in the following circulars issued by the Bank stand repealed (list as provided below). All approvals / acknowledgements given under the above circulars shall be deemed as given under these directions. Notwithstanding such repeal, any action taken/purported to have been taken or initiated under the instructions/guidelines having repealed shall continue to be guided by the provisions of said instructions/guidelines.

Annex VI

‘Fit and Proper’ Criteria for directors of CICs

Reserve Bank had issued a Directive in June 2004 to banks on undertaking due diligence on the persons before appointing them on the Boards of banks based on the ‘Report of the Consultative Group of directors of Banks / Financial Institutions’. Specific ‘fit and proper’ criteria to be fulfilled by the directors were also advised.

2. The importance of due diligence of directors to ascertain suitability for the post by way of qualifications, technical expertise, track record, integrity, etc. needs no emphasis for any financial institution. It is proposed to follow the same guidelines mutatis mutandis in case of CICs also. While the Reserve Bank does carry out due diligence on directors before issuing Certificate of Registration to an CIC, it is necessary that CICs put in place an internal supervisory process on a continuing basis. Further, in order to streamline and bring in uniformity in the process of due diligence, while appointing directors, CICs shall ensure that the procedures mentioned below are followed and minimum criteria fulfilled by the persons before they are appointed on the Boards:

(a) CICs shall undertake a process of due diligence to determine the suitability of the person for appointment / continuing to hold appointment as a director on the Board, based upon qualification, expertise, track record, integrity and other ‘fit and proper’ criteria. CICs shall obtain necessary information and declaration from the proposed / existing directors for the purpose in the format given at Annex VII.

(b) The process of due diligence shall be undertaken by the CICs at the time of appointment / renewal of appointment.

(c) The boards of the CICs shall constitute Nomination and Remuneration Committees²⁵ to scrutinize the declarations.

(d) Based on the information provided in the signed declaration, Nomination and Remuneration Committees²⁶ shall decide on the acceptance or otherwise of the directors, where considered necessary.

(e) CICs shall obtain annually as on 31st March a simple declaration from the directors that the information already provided has not undergone change and where there is any change, requisite details are furnished by them forthwith.

(f) The Board of the CIC must ensure in public interest that the nominated/ elected directors execute the deeds of covenants in the format given in Annex VIII.

Annex IX

Guidelines on Private Placement of NCDs (maturity more than 1 year) by CICs:

1. CICs shall put in place a Board approved policy for resource planning which, inter-alia, shall cover the planning horizon and the periodicity of private placement.

2. The issues shall be governed by the following instructions:

i) The minimum subscription per investor shall be ₹20,000 (Rupees Twenty thousand);

ii) The issuance of private placement of NCDs shall be in two separate categories, those with a maximum subscription of less than ₹1 crore and those with a minimum subscription of ₹1 crore and above per investor;

iii) There shall be a limit of 200 subscribers for every financial year, for issuance of NCDs with a maximum subscription of less than ₹1 crore, and such subscription shall be fully secured;

iv) There shall be no limit on the number of subscribers in respect of issuances with a minimum subscription of ₹1 crore and above; the option to create security in favour of subscribers shall be with the issuers. Such unsecured debentures shall not be treated as public deposits as defined in Core Investment Companies (Reserve Bank) Directions, 2016.

v) A CIC shall not extend loans against the security of its own debentures (issued either by way of private placement or public issue).

3. Tax exempt bonds offered by CICs are exempted from the applicability of the circular.

4. For NCDs of maturity upto one year, instructions contained in Master Direction – Reserve Bank of India (Commercial Paper and Non-Convertible Debentures of original or initial maturity upto one year) Directions, 2024’ dated January 03, 2024 (as amended from time to time), issued by Financial Markets Regulation Department of the Reserve Bank, shall be applicable.

¹ Vide circular DOR.CRE.REC.No.60/03.10.001/2021-22 dated October 22, 2021.

² Vide circular DOR.CRE.REC.No.60/03.10.001/2021-22 dated October 22, 2021.

³ Vide circular DOR.CO.LIC.CC No.119/03.10.001/2020-21 dated February 12, 2021

⁴ The Financial Action Task Force (FATF) periodically identifies jurisdictions with weak measures to combat money laundering and terrorist financing (AML/CFT) in its following publications: i) High-Risk Jurisdictions subject to a Call for Action, and ii) Jurisdictions under Increased Monitoring. A jurisdiction, whose name does not appear in the two aforementioned lists, shall be referred to as a FATF compliant jurisdiction.

⁵ Potential voting power could arise from instruments that are convertible into equity, other instruments with contingent voting rights, contractual arrangements, etc. that grant investors voting rights (including contingent voting rights) in the future. In such cases, it should be ensured that new investments from FATF non-compliant jurisdictions are less than both (i) 20 per cent of the existing voting powers and (ii) 20 per cent of existing and potential voting powers assuming those potential voting rights have materialised.

⁶ Vide circular ‘DOR.CRE.REC.No.60/03.10.001/2021-22’ dated October 22, 2021.

⁷ Vide Circular DOR.ACC.REC.No.23/21.02.067/2021-22 dated June 24, 2021.

⁸ Where a CIC has been in existence for less than three financial years, it shall be since registration.

⁹ Vide circular DOR.STR.REC.58/21.04.048/2023-24 dated December 19, 2023 and circular DOR.STR.REC.85/21.04.048/2023-24 dated March 27, 2024.

¹⁰ Instructions under paragraphs 30A, 30B and 30C introduced vide circular DOR.CRE.REC.No.60/03.10.001/2021-22 dated October 22, 2021.

¹¹ As defined in Section 2(51) of Companies Act, 2013, as amended from time to time.

¹² Vide circular DOR.GOV.REC.No.29/18.10.002/2022-23 dated April 29, 2022

¹³ As defined in Section 2(51) of Companies Act, 2013, as amended from time to time.

¹⁴ ‘Senior Management’ are the same as defined in ‘Explanation’ to Section 178 of the Companies Act, 2013.

¹⁵ Vide circular DOR.CRE.REC.No.60/03.10.001/2021-22 dated October 22, 2021.

¹⁶ Financial sector for this purpose would mean a sector/ service regulated by a Financial Sector Regulator

¹⁷ The definitions of Financial Information Provider and Financial Information User are as per the Master Direction- Non-Banking Financial Company - Account Aggregator (Reserve Bank) Directions, 2016, as amended from time to time.

¹⁸ Standard on Auditing (SA) 600 - "Using the Work of Another Auditor" and Guidance Note on Audit of Consolidated Financial Statements.

²⁵ Nomination Committee for Government owned CICs.

²⁶ Nomination Committee for Government owned CICs.