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

Besides a minimum net worth of Rs 500 crore and a satisfactory track record, the new norms stipulate that the CIC should have profit for three concsecutive years and also said that the level of net non-performing assets shall be not more than 1% of the total advances, said the RBI notification. The maximum equity contribution a CIC can hold in the joint venture company will be as per IRDA approval. 

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. 

The banking regulator has further 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. (Economic Times)