RBI bars CICs from undertaking insurance agency business
The Reserve Bank on Monday barred Core Investment Companies (CICs) from undertaking insurance agency business even as they are allowed to invest in insurance venture.
Mumbai: The Reserve Bank on Monday barred Core Investment Companies (CICs) from undertaking insurance agency business even as they are allowed to invest in insurance venture.
CICs are non-banking finance companies (NBFCs) which invest in shares for the purpose of owning a stake in a company, rather than for trading. They also do not carry out any other financial activities.
"While the eligibility criteria, in general, 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," RBI said in a notification.
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, it said.
The Reserve Bank will give permission on case to case basis keeping in view all relevant factors, it added.
It should be ensured that risks involved in insurance business do not get transferred to CIC, it added.
As per the notification, no CIC would be allowed to conduct such business departmentally.
"Further, an NBFC (in its group or outside the group) would normally not be allowed to join an insurance company on risk participation basis and hence should not provide direct or indirect financial support to the insurance venture," it said.
Within the group, CICs may be permitted to invest up to 100 percent of the equity of the insurance company either on a solo basis or in joint venture with other non-financial entities in the group subject to various conditions.
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, it said.
As part of necessary conditions, the owned funds of the CIC shall not be less than Rs 500 crore and the level of net non-performing assets shall be not more than 1 percent of the total advances.