Revised Norms on Foreign Direct Investment in Asset Reconstruction companies

The Department of Industrial Policy & Promotion has vide a Press Note dated 6th May 2016 allowed 100% foreign direct investment under the automatic route in Asset Reconstruction Companies (“ARC”). Subject to certain key conditions the investment limit of the sponsor in the shareholding of an ARC will be governed by the provisions of the Securitization and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 (the “SARFAESI Act”) as amended from time to time. Currently, the SARFAESI Act restricts a sponsor from being a holding company of an ARC (i.e., holding more than 50% of shareholding) or from holding a controlling interest in an ARC. The provisions of this Press Note will currently not pave the way for 100% FDI by a sponsor in an ARC, unless the SARFAESI Act is amended in this regard. Foreign Institutional Investor/Foreign Portfolio Investor (“FII/FPI”) can invest up to 100% of each tranche in the Security Receipts issued by ARCs registered with the Reserve Bank of India (“RBI”) subject to directions/ guidelines of RBI & the total shareholding of an individual FII/FPI shall be below 10% of the total paid up capital. All FII/FPI investments would be subject to provisions of the SARFAESI Act.

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