Ceiling for FDI in ARCs raised to 74% from 49%

Cap on FII investment in security receipts scrapped

The government has increased the ceiling for foreign direct investment (FDI) in asset reconstruction companies (ARCs) to 74 per cent from 49 per cent.

This is, however, subject to the condition that no sponsor should hold more than 50 per cent of the shareholding in an ARC, either by way of FDI or by routing through a foreign institutional investor (FII).

Foreign investment in ARCs will have to comply with the FDI norms in terms of entry route conditionality and sectoral caps, the finance ministry said in a release.

HELP AT HAND

• More global distressed asset funds will invest in India
• Better revival prospects for restructured accounts
• Reduce burden off bank balance sheets saddled with non-performing assets
• Asset reconstruction companies can offer better terms to banks to acquire bad loans 

The 74 per cent FDI limit in ARCs will be the combined limit of FDI and FII.

With this, the prohibition on investment by FIIs in ARCs will be removed.

However, the total shareholding of an individual FII should not exceed 10 per cent of its total paid-up capital, according to the release.

“The limit of FII investment in security receipts (SRs) may be enhanced from 49 per cent to 74 per cent. Further, the individual limit of 10 per cent 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,” said the release.

The government reviewed the ceilings of FDI and FII after consulting the stakeholders and sector regulators.

The Reserve Bank of India and the Securities and Exchange Board of India will issue relevant notifications.