Press Information Bureau

Government of India

Ministry of Finance

21-December-2012 18:47 IST

The Central Government had permitted Foreign Direct Investment (FDI) in the equity capital of Asset Reconstruction Company (ARCs) upto 49% vide Press Release dated 08.11.2005. Further, on 09.11.2005, the Government permitted the Foreign Institutional Investors (FIIs) registered with the Securities and Exchange Board of India (SEBI) to invest in Security Receipts (SRs) issued by ARCs upto 49% of each tranche of scheme of SRs. The ceilings of FDI and FII have been reviewed in consultation with the stakeholders and the sector regulators. Accordingly, the Government has decided that –

i. The ceiling for FDI in ARCs has been increased from 49% to 74% subject to the condition that no sponsor may hold more than 50% of the shareholding in an ARC either by way of FDI or by routing through an FII. The foreign investment in ARCs would need to comply with the FDI policy in terms of entry route conditionality and sectoral caps.

ii. The foreign investment limit of 74% in ARC would be a combined limit of FDI and FII. Hence, the prohibition on investment by FII in ARCs will be removed. The total shareholding of an individual FII shall not exceed 10% of the total paid-up capital.

iii. The limit of FII investment in SRs may be enhanced from 49% to 74%. Further, the individual limit of 10% for investment of a single FII in each tranche of SRs issued by ARCs may be dispensed with. Such investment should be within the FII limit on corporate bonds prescribed from time to time, and sectoral caps under the extant FDI Regulations should be complied with.

The necessary notification / circular under FEMA are being brought out separately by the Reserve Bank of India.

The necessary notification under SEBI (FII) Regulations is being brought out separately by the Securities and Exchange Board of India.

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DSM/RS/ka

Foreign investment limits in asset reconstruction companies raised to a combined cap, subject to sponsor concentration and FII share restrictions. The Government raised the ceiling for FDI in Asset Reconstruction Companies from 49% to 74%, subject to FDI entry route conditions and sectoral caps, and imposed a sponsor cap preventing any sponsor holding more than 50% of an ARC either directly or via an FII. The 74% limit is a combined FDI and FII cap; FIIs may invest in ARCs (individual FII shareholding capped at 10% of paid-up capital) and FII investment in Security Receipts may also be increased subject to corporate bond limits and sectoral caps. RBI and SEBI will notify implementing rules.