The panel which has been set up by the Reserve bank of India has recently suggested that the core investment companies need stronger corporate governance practices, which includes the formation of the board-level committees, internal audits and the appointment of the independent directors.
These recommendations were submitted by the WG (working group) to Review the Regulatory and Supervisory Framework for Core Investment Companies (CICs) which was established on 3 July 2019. The group chief was Tapan Ray, former secretary at Ministry of Corporate Affairs.
Core investment companies are non-banking financial companies (NBFCs) that have upto 90% of their net assets in the form of investment in equity shares, preference shares, bonds, debentures, debt or loans in group companies.
After the default by the Infrastructure Leasing and Financial Services Ltd (IL&FS), a large systemically important core investment company, experts have became more vigilant for seeking review.
“Currently, corporate governance guidelines are not explicitly made applicable to CICs. To strengthen the governance practices, the working group recommends constitution of board level committees viz. audit committee, nomination and remuneration committee and group risk management committee,” the report said.
Further, it says “In a few cases, the working group said, it has been observed that the CIC had lent funds to group companies at zero percent rate of interest with bullet repayment of 3-5 years and without any credit appraisal.”
Further, the panel suggest the companies to prepare financial statements and the ring-fencing which should exclude the employees and executive directors of the group of companies.