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, adding, this is subject to certain conditions. The decision was taken after consultation with the stakeholders and the sector regulators, it added.
However, the foreign investment in ARCs would need to comply with the FDI policy, including the one related with sectoral caps. Further, foreign investment limit of 74 percent in ARC would be a combined limit of FDI and FII. With this change in the policy, “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, the Ministry said.
Earlier, Foreign Institutional Investors (FIIs) were permitted to invest only in Security Receipts (SRs) issued by ARCs upto 49 percent of each tranche of scheme of SRs. The Finance Ministry also said “the limit of FII investment in SRs may be enhanced from 49 per cent to 74 percent”. Further, “the individual limit of 10 percent for investment of a single FII in each tranche of SRs may be dispensed with,” it said, adding the necessary notification and circular would be issued by RBI and SEBI. The investments by FIIs would remain within the limit on on corporate bonds, and sectoral caps under the extant FDI regulations.
The government had opened the ARC segment for FDI in 2005 as domestic companies did not have any experience in setting up this business. Presently there are 14 ARCs in the country, of which nine have no foreign investment. ARCIL, a public sector ARC, is handling about 60 percent of the asset restructuring business in the country.