In the backdrop of the steep fall in the rupee and rising bad loans in the banking system, the Reserve Bank of India notified the hike in the investment ceiling for foreign direct investment (FDI) in Asset Reconstruction Companies (ARCs) from 49 per cent to 74 per cent.
In a bid to attract foreign institutional investor participation in ARCs, the RBI, in a notification said, the foreign investment limit of 74 per cent in ARC would be a combined limit of FDI and FII. Hence, the prohibition on investment by FII in ARCs will be removed. Further, the limit of FII investment in Security Receipts (SRs) has been enhanced from 49 per cent to 74 per cent of the paid up value of each tranche of scheme of SRs issued by the ARC.
The individual limit of 10 per cent for investment of a single FII in each tranche of SRs issued by ARCs has been dispensed with. Such investment should be within the FII limit on corporate bonds prescribed.
The total shareholding of an individual FII shall not exceed 10 per cent of the total paid-up capital, said the RBI.
The increased FDI limit is subject to the condition that no sponsor can hold more than 50 per cent of the shareholding in an ARC either by way of FDI or by routing through a foreign institutional investor.