The Department of Industrial Policy and Promotion (DIPP) has notified a Budget announcement to permit 100% foreign direct investment (FDI) in asset reconstruction companies (ARCs) through automatic route.
Earlier, FDI up to 49% in ARCs was allowed through automatic route, and beyond that with the approval of the Foreign Investment Promotion Board.
Presenting the Budget for 2016-17, finance minister Arun Jaitley had said: “100% FDI in ARCs will be permitted through automatic route. Foreign Portfolio Investors (FPIs) will be allowed up to 100% of each tranche in securities receipts issued by ARCs subject to sectoral caps.”
In a late evening notification on Saturday, the DIPP said foreign institutional investors (FIIs)/FPIs can invest in the security receipts issued by ARCs registered with the Reserve Bank of India (RBI). FIIs/FPIs may be allowed to invest up to 100%, instead of the earlier 74%, of each tranche in security receipts issued by ARCs, subject to directions of the RBI.
However, the condition that the total shareholding of an individual FII/FPI should remain below 10% of total paid-up capital remains even in the latest notification.
In his Budget speech, Jaitley had said: To tackle the problem of stressed assets in the banking sector, ARCs have a very important role. I therefore, propose to make necessary amendments in the SARFAESI Act 2002 to enable the sponsor of an ARC to hold up to 100% stake in the ARC and permit non-institutional investors to invest in Securitization Receipts.”