RBI releases entry norms for CICs into insurance business

India Infoline News Service | Mumbai |

Among other norms, the RBI said that the level of net non-performing assets shall be not more than 1% of total advances

The Reserve Bank of India (RBI) on Monday has allowed core investment companies (CICs) to set up a joint venture company for undertaking insurance business with risk participation, subject to safeguards.

CICs hold their assets predominantly as stock in group companies but not for trading.

“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.

Among other norms, the RBI said that the level of net non-performing assets shall be not more than 1% of total advances.

Further, it should have registered net profit continuously for three consecutive years, and “the track record of the performance of the subsidiaries, if any, of the CIC concerned should be satisfactory,” RBI said.

The owned funds of CICs shall not be less than Rs. 500 crore and the level of their net non-performing assets shall be not more than 1% of total advances. Also, the CIC should have registered a net profit for three consecutive years, RBI said.

Further, an NBFC (in its group / 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.

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.

In case where a foreign partner contributes 26% of the equity with the approval of Insurance Regulatory and Development Authority/Foreign Investment Promotion Board, more than one CIC may be allowed to participate in the equity of the insurance joint venture.

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 RBI. The central 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.
 

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