RBI Raises FDI Cap in Asset Reconstruction Companies

August 20, 2013 Posted by India Briefing Reading Time: 2 minutes

Aug. 20 – The Reserve Bank of India (RBI) has notified the decision by the Central Government to increase the FDI cap in asset reconstruction companies (ARCs) from 49 percent to 74 percent. This will be subject to the condition that a sponsor may hold no more than 50 percent of the shareholding in an ARC either by way of FDI or by routing through a foreign institutional investor (FII).

Furthermore, the previous prohibition disallowing FIIs to invest in the equity capital of ARCs has been removed. However, the total shareholding of an FII may not exceed 10 percent of the total paid-up capital.

“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 RBI said in the notification.

In the same notification, the RBI has also increased the limit off FII investment in security receipts (SRs) from 49 percent to 74 percent of the paid-up value of each tranche of scheme of SRs issued by ARCs. SRs refer to a receipt or other kind of security issued by an ARC to a qualified institutional buyer, evidencing a purchase or acquisition in the financial asset involved.

The RBI also amended the investment limit of FIIs in each tranche of SRs issued by ARCs.

“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,” said the notification.

This latest series of amendments to FDI caps has been seen as another measure by India to liberalize investment norms and to attract greater capital inflows to support a slumping rupee.

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