The Bank of Banks in India, Reserve Bank of India (RBI) has allowed core investment firms/companies (CICs) to set up a joint venture company for undertaking insurance business with risk participation, subject to safeguards. In the notification, RBI has said a core investment company should have a minimum net worth of Rs 500 cr and a satisfactory track record. And, also should have registered net profit for three consecutive years if it wanted to enter the insurance business. The notification also said that the level of net non-performing assets shall be not more than 1% of the total advances.
RBI has also clarified that 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. It should be ensured that risks involved in insurance business do not get transferred to the CIC. Further, the notification said, “CICs cannot enter into the insurance business as agents. CICs that wish to participate in the insurance business as investors or on risk participation basis will be required to obtain prior approval of the Reserve Bank (which) will give permission on a case-to-case basis, keeping in view all relevant factors."
As for the non-deposit taking systemically important CICs, they a 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. Further, the Reserve Bank clarified that no CIC would be allowed to conduct such business departmentally. Further, an NBFC (in its group / outside the group) would normally not be allowed to join an insurance company and hence should not provide direct or indirect financial support to the insurance venture.
Within the group, CICs may 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 % equity with the approval of IRDA/FIPB, more than one CIC may be allowed to participate in the equity of the insurance joint venture.
RBI has also clarified that 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. It should be ensured that risks involved in insurance business do not get transferred to the CIC. Further, the notification said, “CICs cannot enter into the insurance business as agents. CICs that wish to participate in the insurance business as investors or on risk participation basis will be required to obtain prior approval of the Reserve Bank (which) will give permission on a case-to-case basis, keeping in view all relevant factors."
As for the non-deposit taking systemically important CICs, they a 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. Further, the Reserve Bank clarified that no CIC would be allowed to conduct such business departmentally. Further, an NBFC (in its group / outside the group) would normally not be allowed to join an insurance company and hence should not provide direct or indirect financial support to the insurance venture.
Within the group, CICs may 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 % equity with the approval of IRDA/FIPB, more than one CIC may be allowed to participate in the equity of the insurance joint venture.
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