Criteria to be fulfilled to be a NBFC under section 45 I of the RBI act 1934.
- The most important is that the principal business of the Company should be evident enabling us to classify it as an NBFC.
[As per the RBI press release in April 1999 Principal business is that if the financial assets of a company are more than 50 per cent of its total assets (netted off by intangible assets) and income from financial assets is more than 50 per cent of the gross income]
Core Investment Company
Core Investment Companies (CICs) were not considered as carrying on the business of acquisition of shares and securities in the following circumstances, namely,
(i) not less than 90% of their assets were in investments in shares for the purpose of holding stake in the investee companies;
(ii) they were not trading in these shares except for block sale (to dilute or divest holding);
(iii) they were not carrying on any other financial activities; and
(iv) they were not holding / accepting public deposits.
As such, companies fulfilling the above criteria were not required to obtain Certificate of Registration (COR) from RBI under Section 45 IA of the RBI Act 1934. It has been found in practice, that it is very difficult to determine whether a company has invested in the shares of another company for the purpose of holding stake or for the purpose of trade. Even where initially investments had been made in some cases for holding stake in the investee company, for various reasons these shares were sold or additional shares were purchased. Such absence of clarity is not in the interest of the system. It was therefore decided that investing in shares of other companies, even for the purpose of holding stake should also be regarded as carrying on the business of acquisition of shares in terms of Section 45I(c) (ii) of RBI Act. –
- Even if the company is running in losses on fulfilling the above said criteria it would still be considered to be a Core Investment Company (CIC) as per the RBI regulations.