Govt raises FDI cap in ARCs to 74 pc

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SME Times News Bureau | 24 Dec, 2012
Foreign investment ceiling in Asset Reconstruction Companies (ARCs) has been increased to 74 percent from 49 percent, a move aimed at bringing more foreign expertise in the segment.

"The ceiling for FDI in ARCs has been increased from 49 percent to 74 percent ," the Finance Ministry said in a statement today, adding, this is subject to certain conditions.

Accordingly, the Government has decided that the ceiling for FDI in ARCs has been increased from 49 percent to 74 percent subject to the condition that no sponsor may hold more than 50 percent of the shareholding in an ARC either by way of FDI or by routing through an Foreign Institutional Investors (FIIs). The foreign investment in ARCs would need to comply with the FDI policy in terms of entry route conditionality and sectoral caps.

The foreign investment limit of 74 percent in ARC would be a combined limit of FDI and FII. Hence, the prohibition on investment by FII in ARCs will be removed. The total shareholding of an individual FII shall not exceed 10 percent of the total paid-up capital.

ARCs are like asset reconstruction companies, those engaged in acquisition of NPAs from the banking system and resolving the assets acquired. They help in turnaround of sick units by restructuring of debt and financial help.

The Central Government had permitted Foreign Direct Investment (FDI) in the equity capital of ARCs upto 49 percent vide Press Release dated 08.11.2005. Further, on 09.11.2005, the Government permitted the FIIs registered with the Securities and Exchange Board of India (SEBI) to invest in Security Receipts (SRs) issued by ARCs upto 49 percent of each tranche of scheme of SRs.

The ceilings of FDI and FII have been reviewed in consultation with the stakeholders and the sector regulators.

The limit of FII investment in SRs may be enhanced from 49 percent to 74 percent. Further, the individual limit of 10 percent for investment of a single FII in each tranche of SRs issued by ARCs may be dispensed with. Such investment should be within the FII limit on corporate bonds prescribed from time to time, and sectoral caps under the extant FDI Regulations should be complied with.

The necessary notification / circular under FEMA are being brought out separately by the Reserve Bank of India.

The necessary notification under SEBI (FII) Regulations is being brought out separately by the Securities and Exchange Board of India.