100% FDI through Automatic Route permitted in Asset Reconstruction Companies

May 9, 2016 14:12 IST

The Department of Industrial Policy & Promotion (DIPP) under Union Ministry of Commerce & Industry permitted 100% foreign direct investment (FDI) into asset reconstruction companies (ARCs) through automatic route.

In this regard the DIPP notified the Press Note 4 (2016 series) on 6 May 2016.

Key Highlights

• Person resident outside India can invest in the capital of ARCs registered with Reserve bank of India, up to 100 per cent on the automatic route. Earlier, it was 49 per cent through automatic route and beyond 49 percent through government route.

• It stated that total share holding of an individual foreign institutional investor (FII)/foreign portfolio investment (FPI) shall be below 10 per cent of the total paid-up capital.

• FIIs/ FPIs may be allowed up to 100 per cent of each tranche in security receipts (SRs) issued by ARCs which are subjected to RBI guidelines.

Asset Reconstruction Companies (ARCs)

• These are the companies that are set up to reconstruct or re-package assets to make them more saleable.

• The assets include loans from banks, card companies, financial institutions etc.

• They were set up to provide a focused approach to Non-Performing Loans resolution issue by:-

(a) Isolating Non Performing Loans (NPLs) from the Financial System (FS),

(b) Freeing the financial system to focus on their core activities and

(c) Facilitating development of market for distressed assets.

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