100% FDI in Asset Reconstruction Companies

The Centre has operationalised a budget announcement on allowing 100 per cent foreign direct investment in asset reconstruction companies (ARCs) under automatic route..

In this year’s budget speech, the Finance Minister Arun Jaitley had announced that 100 percent FDI would be allowed in ARCs and foreign portfolio investors can invest in security receipts.

However, some conditions have been specified including stipulation that the total shareholding of an individual FII/FPI should be below 10 per cent of total paid-up capital.

Also, Foreign Institutional Investors/Foreign Portfolio Investors have been permitted to invest upto 100 per cent of each tranche in Security Receipts issued by ARCs, subject to directions/guidelines of RBI.

The investment limit of a sponsor in the shareholding of an ARC will be governed by the provision of the SARFAESI law, as amended from time to time.

Allowing 100 per cent FDI in ARCs under automatic route would come as big boost for such companies which are struggling for funds as banks refuse to give steep discounts on the stressed assets and the ARCs have to fork out upfront payment of 15 per cent of cost of asset.