RBI relaxes 26% debt-equity conversion cap for ARCs

In a major boost to the asset reconstruction companies (ARCs) the Reserve Bank today relaxed norms capping their shareholdings at 26 per cent in the borrower firm under reconstruction, provided their net-owned funds are maintained at Rs 100 crore.
Earlier ARCs could convert a portion of the debt into equity of the borrower company to the extent of 26 per cent of the revamped equity capital.
However, RBI in a notification today said, "ARCs with net-owned fund (NOF) of Rs 100 crore on an ongoing basis are exempted from the shareholding cap at 26 per cent of post- converted equity of the borrower company".

But the regulator did not specicfy the new sharing limit post-debt conversion.
All ARCs with at least half of the directors, including independent directors, are also exempted from the 26 per cent shareholding cap in the borrower firm.
The central bank also asked the boards of ARCs to frame a policy for converting debt into equity, under which it prefers a committee comprising mostly independent directors to take a call on such matters.
The equity shares acquired under the scheme shall be periodically valued and marked-to-market and the frequency of valuation shall be at least once a month, the central bank notification said.