1. Regulatory Alert Dec, 2012
OVERSEAS INVESTMENT BY CORE INVESTMENT COMPANIES
(A recent notification issued by the Reserve Bank of India formulating the regulatory
framework for overseas investment by Core Investment Companies)

2. Introduction
preference shares, bonds, debentures, debt or
loans in group companies;
With the objective of regulating the credit
system, the Reserve Bank of India (RBI) had (ii) its investments in the equity shares
issued a notification on 06.12.2012 wherein the (including instruments compulsorily
RBI has issued directions known as “Core convertible into equity shares within a period
Investment Companies - Overseas Investment not exceeding 10 years from the date of issue)
(Reserve Bank) Directions, 2012”. The RBI has in group companies constitutes not less than
made these directions applicable to all Corporate 60% of its net assets;
Investment Companies (whether registered with
RBI or exempted from registration) that intend to (iii) it does not trade in its investments in
invest overseas. shares, bonds, debentures, debt or loans in
group companies except through block sale
for the purpose of dilution or disinvestment;
What is Corporate Investment Companies
(iv) it does not carry on any other financial
activity referred to in Section 45 I (c) and 45 I
The Corporate Investment Companies (CICs) is
(f) of the Reserve Bank of India Act, 1934
defined in para 2(b) of the circular dated
except:
5.01.2011 titled as Regulatory Framework for
Core Investment Companies. According to para a) investment in bank deposits, money
2(b) of the said circular, Core Investment market instruments, government
Company means a non-banking financial securities, and bonds or debentures
company carrying on the business of acquisition issued by group companies;
of shares and securities and which satisfies the
following conditions as on the date of the last b) granting of loans to group companies; and
audited balance sheet:-
c) issuing guarantees on behalf of group
(i) it holds not less than 90% of its net assets in companies.
the form of investment in equity shares,

3. Prior Approval of RBI
stipulated format of quarterly return and also
continue to submit the return quarterly.
The RBI has made these directions applicable to
all Corporate Investment Companies (whether
Eligibility Criteria
registered with RBI or exempted from
registration) that intend to invest overseas.
The key eligibility criteria for making overseas
 Investment in financial sector overseas investments are as follows:
The RBI made it mandatory for the registered  The Adjusted Net Worth (ANW) of the CIC
and unregistered CICs desirous of making shall not be less than 30% of its aggregate
overseas investment in financial sector to hold a risk weighted assets on balance sheet and
Certificate of Registration (CoR) and comply with risk adjusted value of off-balance sheet
all the regulations applicable to registered CICs. items as on the date of the last audited
balance sheet as at the end of the
 Investment in non-financial sector financial year.
Exempted CICs making overseas investment in  The CIC shall continue to meet the
non-financial sector will not require registration requirement of minimum ANW, post
from the Reserve Bank and hence, these overseas investment.
Directions are not applicable to them.
 The level of net Non-Performing Assets of
However, a registered CIC need not obtain prior the CIC should not be more than 1% of
approval from Department of Non-Banking the net advances as on the date of the last
Supervision (DNBS), RBI, for overseas audited balance sheet;
investment in non-financial sector. It is
mandatory for the registered CIC to report to the  The CIC should be earning profit
Regional Office of DNBS where it is registered continuously for the last three years and
within 30 days of such investment in the its performance should be satisfactory
during the period of its existence.

4. Key Conditions
party to or on behalf of its overseas
JV/WOS).
The key conditions subject to which overseas
investments may be made are as follows:  As CICs are non-operating entities, they
will not, in the normal course, be allowed
 Direct investment in activities prohibited to open branches overseas. CICs which
under Foreign Exchange Management Act, have already set up branch(es) abroad for
1999 (FEMA) will not be permitted; undertaking investment business should
approach RBI within 3 months from the
 The total overseas investment should not
date of these Directions for a review.
exceed 400% of the owned funds of the
CIC and total overseas investment in
 The WOS/JV being established abroad
financial sector should not exceed 200% of
should not be a shell company i.e "a
its owned funds;
company that is incorporated, but has no
significant assets or operations." However
 Investment in financial sector shall be
companies undertaking activities such as
only in regulated entities abroad.
financial consultancy and advisory
 Entities set up abroad or acquired abroad services shall not be considered as shell
shall be treated as wholly owned companies;
subsidiaries (WOS) /joint ventures (JV)
abroad;  The WOS/JV being established abroad by
the CIC should not be used as a vehicle
 Overseas investments by a CIC in financial for raising resources for creating assets in
/non-financial sector would be restricted India for the Indian operations;
to its financial commitment. (“Financial
commitment" means the amount of direct  In order to ensure compliance of the
investment by way of contribution to provisions, the parent CIC shall obtain
equity and loan and fifty percent of the periodical reports/audit reports at least
amount of guarantees issued by an Indian quarterly about the business undertaken

5. by the WOS/JV abroad and shall make  The parent CICs shall obtain periodical
them available to the inspecting officials reports about the business undertaken by
of the RBI; the representative offices abroad. If the
representative offices have not undertaken
 The WOS/JV shall make disclosure in its any activity or such reports are not
Balance Sheet the amount of liability of forthcoming, the Bank may advise the CIC
the parent entity towards it and also to wind up the establishment.
whether it is limited to equity / loan or if
guarantees are given, the nature of such
Penal Action
guarantees and the amount involved;
 All the operations of the WOS/JV abroad The RBI has specifically stated in the directions
shall be subject to regulatory prescriptions that any violation of these directions shall invite
of the host country. penal action under the provisions of Reserve
Bank of India Act, 1934.
 CICs will need prior approval from the
DNBS, RBI for opening representative
offices abroad. Conclusion
 The representative offices can be set up
abroad for the purpose of liaison work, The core objective to issue the afore stated
undertaking market study and research directions is to regulate the credit system and
but not for undertaking any activity which to keep a check on the overseas investments by
involves outlay of funds. the registered or unregistered Core Investment
Companies.
 As it is not envisaged that such offices
would be carrying on any activity other
than liaison work, no line of credit should
be extended.

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