Many believe that the move would improve confidence for CICs to raise funding for their corporate vehicles with more evolved regulation and stronger governance
The Reserve Bank of India's decision to set up a working group (WG) to evaluate the regulatory and supervisory guidelines for Core Investment Companies (CIC) has brought cheers to corporate groups that are struggling with the earlier move of bringing them under the ambit of a non-banking finance company (NBFC) framework. Many believe that the move would improve confidence for CICs to raise funding for their corporate vehicles with more evolved regulation and stronger governance.
Nitin Potdar, partner - merger and acquisition, J Sagar Associates, said, "This is a clear indication that the RBI is open to hearing out the difficulties faced and find a win-win solution."
NBFCs that took deposits from public to run their lending businesses involving car finance, home finance or personal loans etc. were required to have stronger disclosures, governance as prescribed by RBI. The CICs though were allowed relaxation from other rigours of the regular NBFC as they were not raising funds from the public.
However, bringing CICs into the NBFC ambit was putting a lot of restrictions in the way they were making investments as 90% of it had to be in the group company. CICs were also not allowed to leverage the group company's assets and make investments across sectors outside the group company.
Industry experts are of the view that RBI may have realised that such over regulation of CICs is not required and has thus decided to set up a working group to look into the regulations.
L Vishwanathan, partner, Cyril Amarchand Mangaldas, said, "It will improve confidence for CICs to raise funding for their corporate vehicles with more evolved regulation and stronger governance."
The banking sector has significantly reduced lending money due to the huge non-performing asset (NPA) pileup among other reasons. Experts feel, if industrial houses with CICs are also not allowed to leverage their underlying assets for investments, how will the economy grow, how will new projects come up and employment get generated?
"It appears that RBI is now looking at the possibilities of relaxing the norms for CICs and treat such entities differently. The working group may invite responses from the corporate world in terms of relaxations being sought by CICs. Addressing these issues could then help the CICs raise finance and kick-start the investment cycle. That's what the Reserve Bank may have on its mind," the expert said.
Achieving over 7% growth can only happen with an increase in domestic investments. While there have been NPA situations in the market, industry experts are of the view that the entire corporate world cannot be painted with the same brush.
"There are genuine business loss cases and painting all promoters as defaulters and plugging liquidity will only kill the Indian industry. Foreign companies enjoy interest rates of under 2% and have access to huge capital pool to invest in India.
"How will the homegrown companies compete with such global behemoths. We can only hope that post this exercise, the Reserve Bank allows CICs complete flexibility and provides them with a level playing field akin to foreign strategic investors. This is the only way to revive the industry," the expert said.
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