CORE
INVESTMENT COMPANIES – GUIDELINES ON INVESTMENT IN INSURANCE
Notification No.:
RBI/2012-13/466
Date: 01/04/2013
At present NBFCs venturing into insurance are
guided by the circular DNBS (PD).CC.No.13/02.01/99-2000 dated June 30,
2000 on amendment to NBFC Regulations which contains the ‘Guidelines for
entry of NBFCs into Insurance’.
In view of the unique business model of Core
Investment Companies (CICs), it has been decided to issue a separate set of
guidelines for their entry into insurance business.
While the eligibility criteria are similar to that
for other NBFCs, no ceiling is being stipulated for CICs in their investment in
an insurance joint venture. Further it is clarified that CICs cannot undertake
insurance agency business. The Guidelines are enclosed for meticulous
compliance.
CICs exempted from registration with RBI do not
require prior approval provided they fulfill all the necessary conditions of
exemption as provided under/ in CC No.206 dated January 05, 2011. Their
investment in insurance joint venture would be guided by IRDA norms.
Guidelines for Entry of CICs into Insurance
Any Core
Investment Company (CIC) registered with RBI which satisfies the eligibility
criteria given below will be permitted to set up a joint venture company for
undertaking insurance business with risk participation, subject to safeguards.
The maximum equity contribution such a CIC can hold in the joint venture
company will be as per IRDA approval.
i. The
eligibility criteria for joint venture participant will be as under, as per the
latest available audited balance sheet.
a.
The owned funds of the CIC shall
not be less than Rs. 500 crore;
b.
The level of net non-performing
assets shall be not more than 1% of the total advances;
c.
The CIC should have registered
net profit continuously for three consecutive years;
d.
The track record of the
performance of the subsidiaries, if any, of the concerned CIC should be
satisfactory;
e.
The CIC shall comply with all
applicable regulations including CIC Directions, 2011. Thus CICs-ND-SI 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.
iii. Within
the group, CICs may 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 would 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.
iv. In
case where a foreign partner contributes 26% of the equity with the approval of
IRDA/Foreign Investment Promotion Board, more than one CIC may be allowed to
participate in the equity of the insurance joint venture. As such participants
will also assume insurance risk, only those CICs which satisfy the criteria
given in paragraph (i) above, would be eligible.
v. CICs cannot enter into insurance
business as agents. CICs that wish to participate in insurance business as
investors or on risk participation basis will be required to obtain prior
approval of the Reserve Bank. The Reserve Bank will give permission on case to
case basis keeping in view all relevant factors. It should be ensured that
risks involved in insurance business do not get transferred to the CIC.
Regards
CA. Mona Singhal
Partner
Arpit Gupta & Associates
Chartered Accountants
701, Nirmal Tower,
26, Barakhamba Road,
Connaught Place, Delhi-110001
Mobile:- +91-9873082769
Website: www.caaga.co.in
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