Sectoral regulators empowered to petition insolvency of financial services providers: Central Govt notifies insolvency rules

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–Vinod Kothari

(resolution@vinodkothari.com) 

The Central Govt on 15th November notified rules of procedure for insolvency proceedings for financial services providers, thereby indicating that the resolution and liquidation process for financial services entities has been taken out from the proposed enactment dealing with distress of financial entities. Notably, the actions in case of distress of financial services firms is not limited to insolvency – regulators take prompt corrective action, depending on the severity of the distress.

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Financial Service Provider under the clutch of IBC? Nature of the “debt” vs. Nature of the “debtor”

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-Megha Mittal

(resolution@vinodkothari.com)

In a first of its kind, the Hon’ble National Company Law Tribunal, Principal Bench at New Delhi (“NCLT”) vide its order dated 04.11.2019[1] in the matter of Apeejay Trust v. Aviva Life Insurance Co. India Ltd., has initiated corporate insolvency resolution process against the Corporate Debtor, despite it being a financial service provider under the Insolvency and Bankruptcy Code, 2016 (“Code”).

In the above pretext, one may recall the order of the Hon’ble National Company Law Appellate Tribunal in the matter of Randhiraj Thakur v. Jindal Saxena Financial Services[2], wherein the Hon’ble Appellate Tribunal upheld that financial service providers shall not fall within the ambit of the Code. The order of the Hon’ble NCLAT in the said matter has been discussed in our articles “NBFCs and IBC- the Lost Connection”[3] and “State of Perplexity- Applicability of IBC on NBFCs”[4].

In this article, the author has made a humble attempt to analyse the order of the Hon’ble NCLT based on its facts, observations and the extant law.

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FAQs on Fraud Reporting

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Team Corplaw & Finserv | corplaw@vinodkothari.com, finserv@vinodkothari.com

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Reporting of Fraud – Resource Centre

SEBI tightens its norm on resignation of auditors

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– Priya Udita

resolution@vinodkothari.com

OVERVIEW

Observing that a lot of statutory auditors of the companies are abruptly resigning before completing their tenure either due to lack of cooperation or lack of information provided by the company, SEBI has taken the matter in its hand to strengthen the norms. Consequently, SEBI issued a Consultation Paper[1] on policy proposals with respect to resignation of statutory auditors from listed entities (‘Paper’) dated July 18, 2019. The Paper discussed the policy proposal with the twin objective of strengthening disclosures to the investors and clarifying the role of the Audit Committee. Our analysis of the Paper can be assessed here.

Based on the policy proposal and public comments, SEBI issued circular on Resignation of statutory auditors from listed entities and their material subsidiaries (‘Circular’)[2] dated October 18, 2019 defining compliance to be followed by the listed entity and its material subsidiary while appointing or reappointing the auditors.

KEY AMENDMENTS

  1. Applicability:

The Circular is applicable on listed entities and its material subsidiaries. The material subsidiaries can be a listed or an unlisted entity. However, it is interesting to comprehend the applicability of the Circular on the debt listed companies (analysed below in our comment section).

Further, the Circular has come into force with immediate effect from the date of its notification.

  1. Exception:

The provisions of this Circular  is inapplicable in case the auditor disqualified under section 141 of the Companies Act, 2013.

  1. Compliance for limited review or audit review while appointing or reappointing the auditors:
  2. Within 45 days from the end of quarter of a financial year- the auditor shall issue the limited review/ audit report for such quarter before resignation.

For Example: if the auditor resigns on May 28, 2019 then the auditor is required to submit limited review of quarter ending on June 30, 2019.

  1. Resignation after  45  days  from  the  end  of  a  quarter  of  a  financial year- then the auditor shall issue the limited review/ audit report for such quarter as well as the next quarter before resignation.

For Example: if the auditor resigns on August 25, 2019, then the auditor needs to issue limited review/audit report of quarter ending on September 30, 2019 as well as December 30, 2019.

  1. However, if the auditor has signed the limited review/ audit report for the first 3 quarters of a financial year- then the auditor shall issue the limited review/ audit report for the last quarter of such financial year as well as the audit report for such financial year before the resignation.
  2. Role of Audit Committee

Though the SEBI (Listing and Disclosure Obligations) Regulation, 2015 (‘SEBI LODR Regulations’) laid down the broad role of the audit committee inter alia the appointment, remuneration of the statutory auditors, but, there was not much for the audit committee to delve once the auditor resigns. Thus, with the intention to further enhance the role of audit committee, SEBI has laid down following procedures:

  1. For the auditors:
  2. In case of conflict with the management of the listed entity due to lack of cooperation or non-availability of information, the auditor can approach the chairman of the audit committee of the listed entity.
  3. Where the auditor proposes to resign, all concerns with respect to the proposed resignation, along with relevant documents should be given to the audit committee.
  4. Further where the proposed resignation is due to non-receipt of information/explanation from the company, the auditor will have to inform the audit committee of the details of information asked and not provided by the management.
  5. For the Audit Committee:
  6. In case of concern raised due to non-availability of information, audit committee must receive such concern directly and immediately without specifically waiting for the quarterly audit committee meetings.
  7. On receipt of information from the auditor relating to the proposal to resign, the audit committee/board of directors must deliberate on the matter as soon as possible but not later than the date of the next audit committee meeting and communicate its views to the management and the auditor.
  8. Disclaimer by the auditor:

Where the auditor does not receive the information demanded for the purpose of auditing, an appropriate disclaimer in the audit report must be provided in accordance with the Standards of Auditing as specified by ICAI/NFRA.

  1. Obligations of the listed entity/material subsidiary
  2. The listed entity/its material subsidiary are required to ensure that the new compliance is included in the terms of appointment at the time of appointment or reappointment of the auditors. In case of existing auditors, the appointment letter is needed to be modified to give such effect.
  3. The listed entity/its material subsidiary need to obtain the information about the auditor’s resignation in a format as specified in the Circular. Further, the listed entity has the obligation to ensure disclosure of the same under Sub-clause  (7A)  of  Clause  A  in Part  A  of Schedule  III under Regulation 30(2) of SEBI LODR Regulations.
  4. The listed entity/material subsidiary will provide all the relevant document or information as required by the auditor during the period from its proposal to resign and submission of the limited review/audit report.
  5. The listed entity will disclose the views of the audit committee to the stock exchange as soon as possible and not later than later than twenty four hours after the date of such audit committee meeting.

ANALYSIS

Firstly, we need to understand the current regulatory provisions governing the resignation of the auditors and the need felt by SEBI to issue this Circular.

Section 140(2) of the Companies Act, 2013 along with the Companies (Audit and Auditors) Rules, 2014 mandates the auditor to file a statement in a prescribed form to the company and to the Registrar citing reasons for resignation, within 30 days from the date of resignation. In addition to that, sub-clause (7A) of Clause A in Part A of Schedule III under Regulation 30(2) of the SEBI (LODR) Regulations prescribes that the listed entity shall disclose detailed reasons of the resignation to the stock exchange within 24 hours of such resignation. ICAI’s auditing standards (SA-705) enumerates that in a situation where the possible effects on the financial statements of undetected misstatements are both material and pervasive such that a qualification of the opinion would be inadequate to communicate the gravity of the situation, the auditor can resign. According to the Rule 5 of National Financial Reporting Authority Rules, 2018 (‘NFRA Rules’), every auditor of the entities covered by these rules are required to file an annual return in form NFRA 2 with the authority giving details with respect to the audit as well as resignations given in the past 3 years.

Though the law provided these rules and regulation, the rising trend on abrupt resignations by the auditor citing reason as ‘pre-occupation’ were leaving the investors vulnerable to various threats. Due to resignation of the large audit firms, SEBI was forced to review its listing and disclosure obligations. In order to enhance accountability of auditors and protect the investors from the insecure environment due to abrupt resignation, SEBI felt the dire need to regulate such resignations and took the step in a right direction by issuing this Circular.

OUR COMMENT

The Circular was much needed as the rules governing the resignation of auditors across different forums were inadequate. The Circular, in addition to regulation of abrupt resignation, will give a helping hand to the auditors especially in case of lack of cooperation by the management, if any, faced by them. This will ultimately benefit SEBI to look into the matter for potential fraudulent or vulnerable transactions. Further the enhancing role of the audit committee is commendable.

However, the Circular has few gaps such as the applicability of Circular on debt listed entities. Now, there can be various scenarios. Suppose the listed entity ‘A’ has a material subsidiary ‘B’. The Circular will be applicable where ‘B’ is unlisted but a material subsidiary of ‘A’. The question arises where ‘B’ is a debt listed entity only, whether the Circular will be applicable? In our view, the Circular will be applicable in the instant case since B is a material subsidiary.

Further, it is important to note that the intimation requirements under the Circular are two-fold and both are parallel to each other serving different intents. In the first part, the listed entity has to inform the stock exchange within 24 hours of the resignation as per Sub-clause (7A) of Clause A in Part A of Schedule III under Regulation 30(2) of SEBI LODR Regulations, whereas in the second part the audit committee is required to inform the stock exchange as soon as possible from the date of resignation but not later than date of next audit meeting.  The intimation under the second part will carry the views of the audit committee on the concerns raised by the auditor before resignation whereas the intimation under Regulation 30 is an intimation of a material event. We shall be coming out with our set of FAQs on the Circular discussing the same at length from various perspectives.

[1] See the paper here.

[2] See the Circular here.

 

RBI revises qualifying assets criteria for NBFC MFIs

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Team, Vinod Kothari Consultants Pvt. Ltd.

finserv@vinodkothari.com

The RBI on November 08, 2019[1] revised the limits relating to the qualifying assets criteria, giving a much needed boost to Micro-Finance Institutions. The change in limits comes pursuant to the Statement on Developmental and Regulatory Policies[2] issued as part of the Monetary Policy Statement dated 04 October, 2019.

A detailed regulatory framework for MFI’s was put into place in December, 2011 based on the recommendations of a Sub-Committee of the Central Board of the Reserve Bank. The regulatory framework prescribes that an NBFC MFI means a non-deposit taking NBFC that fulfils the following conditions:

  • Minimum Net Owned Funds of Rs. 5 Crore.
  • Not less than 85% of its net assets are in the nature of qualifying assets.

Thus meeting the qualifying assets criteria is crucial to be classified as an NBFC-MFI. The income and loan limits to classify an exposure as an eligible asset were last revised in 2015.

In light of the above and taking into consideration the important role played by MFIs in delivering credit to those in the bottom of the economic pyramid and to enable them to play their assigned role in a growing economy, it was decided to increase and review the limits.

Revised Qualifying assets criteria

The changes are highlighted in the table below:

Qualifying Assets Criteria
Erstwhile Criteria Revised Criteria
Qualifying assets shall mean a loan which satisfies the following criteria:
  i.       Loan disbursed by an NBFC-MFI to a borrower with a rural household annual income not exceeding ₹ 1,00,000 or urban and semi-urban household income not exceeding ₹ 1,60,000;    i.      Loan disbursed by an NBFC-MFI to a borrower with a rural household annual income not exceeding ₹ 1,25,000 or urban and semi-urban household income not exceeding ₹ 2,00,000;
ii.       Loan amount does not exceed ₹ 60,000 in the first cycle and ₹ 1,00,000 in subsequent cycles;  ii.      Loan amount does not exceed ₹ 75,000 in the first cycle and ₹ 1,25,000 in subsequent cycles;
iii.       Total indebtedness of the borrower does not exceed ₹ 1,00,000; iii.      Total indebtedness of the borrower does not exceed ₹ 1,25,000;
Note: All other terms and conditions specified under the master directions shall remain unchanged.

The Statement on Developmental and Regulatory Policies called for revisions in the household income and loan limits only. The notification of the RBI additionally, in light of the change in total indebtedness of the borrower, felt it necessary to also increase the limits on disbursal of loans.

The revised limits are effective from the date of the circular, i. e. November 08, 2019.

[1] https://www.rbi.org.in/Scripts/NotificationUser.aspx?Id=11727&Mode=0

[2] https://www.rbi.org.in/Scripts/BS_PressReleaseDisplay.aspx?prid=48318

Links of related articles:

RBI takes measures to boost MFI lending and regulate PPI issuers

Group Insolvency: Moving from “Entity” to “Enterprise”

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-Sikha Bansal (resolution@vinodkothari.com)

 

Recently, the Working Group led by Shri U.K. Sinha, submitted its Report on group insolvency, recommending a complete framework to facilitate insolvency resolution and liquidation of corporate debtors in a “group”. The Report was submitted by the working group on 23.09.2019.

See our presentation here on various aspects of group insolvency proceedings as suggested by the Working Group, and includes discussion on procedural coordination versus substantive consolidation along with case laws and case studies.

Special Window Fund for Affordable Real Estate Segment: Achche Din for Home-buyers?

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– Sikha Bansal and Priya Udita

(finserv@vinodkothari.com)

Relief has come to the builders of stalled housing project and distressed homebuyers in in the form of establishment of a ‘Special Window‘ fund by the Government to provide priority debt financing for the completion of stalled housing projects that are in the affordable and middle-income housing sector. See the press release here. The announcement came after this package was introduced on September 14 by the Finance Minister. The Government has also issued FAQs on the same, which can be viewed here.

The write-up discusses salient features of the plan.

KEY FEATURES OF THE FUND

  1. Fund will be set up as Category II-AIF (Alternative Investment Fund) with initial amount of Rs. 25,000 crores and registered with SEBI.
  2. The government acting as a sponsor shall infuse Rs. 10,000 crore and the remaining amount to be contributed by State Bank of India, Life Insurance Corporation of India and other institutions.
  3. Investors can be Government and other private investors including cash-rich financial institutions, sovereign wealth funds, public and private banks, domestic pension and provident funds, global pension funds and other institutional investors.
  4. The SBICAP Ventures Limited is proposed to the Investment Manager.
  5. Project declared as non-performing assets (NPAs) or which have been dragged to the NCLT for insolvency proceedings will be included. Apart from that any projects undergoing corporate insolvency resolution process before the NCLT will be considered for funding through the Special Window upto the stage where the resolution plan for such insolvency resolution process has not been approved / rejected by the committee of creditors. However, cases pending in the High Courts or Supreme Court will not be considered.
  6. The retail loans of the selected stalled projects will be restructured as per RBI Guidelines and bank board approved policies.
  7. The investments will be in the form of non-convertible debentures subject to legal, regulatory or other considerations.

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Case Update: SC extended the CIRP by exercising Article 142 of the Constitution

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-Priya Udita

(resolution@vinodkothari.com)

The Supreme Court (SC) in the case of Jaiprakash Associate Ltd. & Anr. v. IDBI Bank Ltd. & Anr. dealt with 2 issues. Firstly, whether the National Company Law Tribunal (NCLT) or National Company Law Appellate Tribunal (NCLAT) can exclude any period from the statutory period in exercise of inherent powers sans any express provision in the Insolvency and Bankruptcy Code (I&B Code) in that regard. Secondly, whether the bidders can submit revised resolution plan after they were originally rejected by Committee of Creditors (CoC).

 

Dealing with the first issue, the SC in its order dated November 6, 2019 held that an extraordinary situation had arisen because of the constant experimentation which went about at different level due to lack of clarity on matters crucial to the decision making process of CoC. Besides that, the SC held that the case on hand is a classic example of how the entire process got embroiled in litigation initially before court and adjudicating authorities due to confusion or lack of clarity in respect of foundational processes to be followed by the CoC. Depending upon the uniqueness and unanimity of the stakeholders and resolution applicant to eschew the liquidation of corporate debtor, the SC by exercising its power under Article 142 of the constitution reckons 90 days extended period from the date of this order instead of the date of commencement of the Insolvency and Bankruptcy Code (Amendment) Act, 2019.

With regard to second issue, the SC relied on the sub clause (7) of Regulation 36B inserted with effect from 4th July, 2018, dealing with the request for resolution plans. It postulates that the resolution professional may, with the approval of the CoC, reissue request for resolution plans, if the resolution plans received in response to earlier request are not satisfactory, subject to the condition that the request is made to all prospective resolution applicants in the final list. Consequently, applying the principle underlying Regulation 36B(7), the SC found it appropriate to permit the interim resolution applicant to reissue request for resolution plans to the two bidders and/or to call upon them to submit revised resolution plans, which can be then placed before the CoC for its due consideration.

However, the SC has clarified that this order is issued in an exceptional case and it will not be construed as a precedent. Further, the SC made it clear that this order does not answers to the question of law as to whether NCLT or NCLAT has the power to issue direction or order inconsistent with the statutory timelines and stipulations specified in the I&B Code or regulations.

Though the SC has extended the CIRP period in an exceptional case, it is still not sufficient to complete the process within the stipulated time period as there are constant amendments being done for the effective implementation of the I&B Code. The NCLT/NCLAT is burdened with the application for clarification on the various procedures or regulation while the time for resolution flies. There are numerous cases pending before adjudicating authorities whose stipulated time period for the resolution has been surpassed.

Working Group proposal for stricter vigilance on CICs

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-By Anita Baid

anita@vinodkothari.com, finserv@vinodkothari.com

Regulators and stakeholders have been seeking a review of Core Investment Companies (CIC) guidelines ever since defaults by Infrastructure Leasing and Financial Services Ltd (IL&FS), a large systemically important CIC. In August 2019, there were 63 CICs registered with the Reserve Bank of India (RBI). As on 31 March, 2019, the total asset size of the CICs was ₹2.63 trillion and they had approximately ₹87,048 crore of borrowings. The top five CICs consist of around 60% of the asset size and 69% borrowings of all the CICs taken together. The borrowing mix consists of debentures (55%), commercial papers (CPs) (16%), financial institutions (FIs) other corporates (16%) and bank borrowings (13%).

Considering the need of the hour, RBI had constituted a Working Group (WG) to Review Regulatory and Supervisory Framework for CICs, on July 03, 2019. The WG has submitted its report on November 06, 2019 seeking comments of stakeholders and members of the public.

Below is an analysis of the key recommendations and measures suggested by the WG to mitigate the related risks for the CICs:

Existing Provision & drawbacks Recommendation Our Analysis
Complex Group Structure
Section 186 (1) of Companies Act, 2013, which restricts the Group Structure to a maximum of two layers, is not applicable to NBFCs

 

 

 The number of layers of CICs in a group should not exceed two, as in case of other companies under the Companies Act, which, inter alia, would facilitate simplification and transparency of group structures.

As such, any CIC within a group shall not make investment through more than a total of two layers of CICs, including itself.

For complying with this recommendation, RBI may give adequate time of say, two years, to the existing groups having CICs at multiple levels.

 A single group may have further sub-division based on internal family arrangements- there is no restriction on horizontal expansion as such.

Further, the definition of the group must be clarified for the purpose of determining the restriction- whether definition of Group as provided under Companies Act 1956 (referred in the RBI Act) or under the Master Directions for CICs would be applicable.

To comply with the proposed recommendations, the timelines as well as suggested measures must also be recommended.
Multiple Gearing and Excessive Leveraging
Presently there is no restriction on the number of CICs that can exist in a group. Further, there is no
requirement of capital knock
off with respect to investments in other CICs. As a result, the step down CICs can use the capital for multiple leveraging. The effective leverage ratio can thus be higher than that allowed for regular NBFCs.		 For Adjusted Net Worth (ANW) calculation, any capital contribution of the CIC to another step-down CIC (directly or indirectly) shall be deducted over and above the 10% of owned funds as applicable to other NBFCs.

Furthe, step-down CICs may not be permitted to invest in any other CIC.

Existing CICs may be given a glide path of 2 years to comply with this recommendation.

 Certain business groups developed an element of multiple gearing as funds could be raised by the CICs and as well as by the step down CICs and the other group companies independently. At the Group level, it therefore led to over-leveraging in certain cases.

A graded approach, based on the asset size of the CICs, must have been adopted in respect of leverage, instead of a uniform restriction for all.
Build-up of high leverage and other risks at group level
There is no requirement to have in place any group level committee to articulate the risk appetite and identify the risks (including excessive leverage) at the Group level Every conglomerate having a CIC should have a Group Risk Management Committee (GRMC) which, inter alia, should be entrusted with the responsibilities of

(a)   identifying, monitoring and mitigating risks at the group level

(b)   periodically reviewing the risk management frameworks within the group and

(c)   articulating the leverage of the Group and monitoring the same.

Requirements with respect to constitution of the Committee (minimum number of independent directors, Chairperson to be independent director etc.), minimum number of meetings, quorum, etc. may be specified by the Reserve Bank through appropriate regulation.

 There is no particular asset size specified. Appropriately, the requirement should extend to larger conglomerates.

 

 

 

 

 

 

 
Corporate Governance
Currently, Corporate Governance guidelines are not explicitly made applicable to CICs i.     At least one third of the Board should comprise of independent members if chairperson of the CIC is non-executive, otherwise at least half of the Board should comprise of independent members, in line with the stipulations in respect of listed entities. Further, to ensure independence of such directors, RBI may articulate appropriate requirements like fixing the tenure, non-beneficial relationship prior to appointment, during the period of engagement and after completion of tenure, making removal of independent directors subject to approval of RBI etc.

ii.   There should be an Audit Committee of the Board (ACB) to be chaired by an Independent Director (ID). The ACB should meet at least once a quarter. The ACB should inter-alia be mandated to have an oversight of CIC’s financial reporting process, policies and the disclosure of its financial information including the annual financial statements, review of all related party transactions which are materially significant (5% or more of its total assets), evaluation of internal financial controls and risk management systems, all aspects relating to internal and statutory auditors, whistle-blower mechanism etc. In addition, the audit committee of the CIC may also be required to review (i) the financial statements of subsidiaries, in particular, the investments made by such subsidiaries and (ii) the utilization of loans and/ or advances from/investment by CIC in any group entity exceeding rupees 100 crore or 10% of the asset size of the group entity whichever is lower.

iii.  A Nomination and Remuneration Committee (NRC) at the Board level should be constituted which would be responsible for policies relating to nomination (including fit and proper criteria) and remuneration of all Directors and Key Management Personnel (KMP) including formulation of detailed criteria for independence of a director, appointment and removal of director etc.

iv.  All CICs should prepare consolidated financial statements (CFS) of all group companies (in which CICs have investment exposure). CIC may be provided with a glide path of two years for preparing CFS. In order to strengthen governance at group level, if the auditor of the CIC is not the same as that of its group entities, the statutory auditor of CIC may be required to undertake a limited review of the audit of all the entities/ companies whose accounts are to be consolidated with the listed entity.

v.   All CICs registered with RBI should be subjected to internal audit.

vi.  While there is a need for the CIC’s representative to be on the boards of its subsidiaries / associates etc., as necessary, there is also a scope of conflict of interest in such situations. It is therefore recommended that a nominee of the CIC who is not an employee / executive director of the CIC may be appointed in the Board of the downstream unlisted entities by the respective CIC, where required.

 The extent of applicability of NBFC-ND-SI regulations is not clear. The FAQs issued by RBI on CICs (Q12), state that CICs-ND-SI are not exempt from the Systemically Important Non-Banking Financial (Non-Deposit Accepting or Holding) Companies Prudential Norms (Reserve Bank) Directions, 2015 and are only exempt from norms regarding submission of Statutory Auditor Certificate regarding continuance of business as NBFC, capital adequacy and concentration of credit / investments norms.

Further, no asset size has been prescribed – can be prescribed on “group basis”. That is, if group CICs together exceed a certain threshold, all CICs in the group should follow corporate governance guidelines, including the requirement for CFS.

Most of the CICs are private limited companies operating within a group, having an independent director on the board may not be favorable.

Further, carrying out and internal audit and preparing consolidated financials would enable the RBI to monitor even unregulated entities in the Group.

Currently, the requirement of
consolidation comes from the
Companies Act read along with
the applicable accounting
standards. Usually, consolidation
is required only where in case of
subsidiaries, associates and joint
ventures.

However, if the recommendation
is accepted as is then even a
single rupee investment
exposure would require
consolidation.

 

 

 

 

 

 

 

 

 

 

 

 

 

 
Review of Exempt Category and Registration
Currently there is a threshold of ₹ 100 crore asset size and access to public funds for registration as CIC
  1. The current threshold of ₹ 100 crore asset size for registration as CIC may be retained. All CICs with public funds and asset size of ₹ 100 crore and above may continue to be registered with RBI. CICs without access to public fund need not register with the Reserve Bank.
  2. The nomenclature of ‘exempted’ CIC in all future communications / FAQs etc. published / issued by the Reserve Bank should be discontinued.
 Since the category of ‘exempted CICs; were not monitored, there was no means to detect when a CIC has reached the threshold requiring registration.

This remains to be a concern.
 Enhancing off-site surveillance and on-site supervision over CICs
There is no prescription for submission of off-site returns or Statutory Auditors Certificate (SAC) for CICs Offsite returns may be designed by the RBI and prescribed for the CICs on the lines of other NBFCs. These returns may inter alia include periodic reporting (e.g. six monthly) of disclosures relating to leverage at the CIC and group level.

A CIC may also be required to disclose to RBI all events or information with respect to its subsidiaries which are material for the CIC.

Annual submission of Statutory Auditors Certificates may also be mandated. Onsite inspection of the CICs may be conducted periodically.

 The reporting requirements may help in monitoring the activities of the CICs and developing a database on the structures of the conglomerates, of which, the CIC is a part. This may assist in identification of unregulated entities in the group.

 

 

Our other related write-ups:

RBI to strengthen corporate governance for Core Investment Companies.

Our write-ups relating to NBFCs can be viewed here: https://vinodkothari.com/nbfcs/