Foreign investments in asset reconstruction companies (arc)

Ajay Mishra (Company Secretary) (74337 Points)

20 August 2013  

RBI/2013-14/191
A.P. (DIR Series) Circular No.28

August 19, 2013

To

All Banks Authorised to Deal in Foreign Exchange

Madam/Sir,

Foreign Investments in Asset Reconstruction Companies (ARC)

Attention of Authorized Dealers is invited to the Foreign Exchange Management (Transfer or Issue of Security by a Person Resident outside India) Regulations, 2000 notified by the Reserve Bank of India vide Notification No.20 dated 3rd May 2000 as amended from time to time and A.P.(DIR Series) Circular N0.16 dated November 11, 2005.

2. In terms of the aforesaid circular :

(a) Foreign Direct Investment (FDI) upto 49% in the equity capital of Asset Reconstruction Companies (ARCs) was permitted subject to certain conditions. However, investment by Foreign Institutional Investors (FIIs) in the equity capital of ARCs was not permitted; and

(b) general permission was granted to Foreign Institutional Investors (FIIs) to invest in Security Receipts (SRs) upto 49 per cent of each tranche of scheme of Security Receipts subject to condition that investment of a single FII in each tranche of scheme of SRs shall not exceed 10 per cent of the issue.

3. A review of the policy was undertaken and it has been decided as under:

  1. 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.

  2. 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.

  3. The limit of FII investment in SRs may be enhanced from 49% to 74% of the paid up value of each tranche of scheme of Security Receipts issued by the Asset Reconstruction Companies. 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.

4. A copy of Press Release dated December 21, 2012 issued in this regard by Department of Financial Services, Ministry of Finance Government of India is as per Annex.

5. Reserve Bank of India has since amended the Regulations and notified vide Notification No. FEMA.254/2013-RB dated January 07, 2013 vide G.S.R.No.344(E) dated May 29, 2013.

6. Authorised Dealer banks may bring the contents of this circular to the notice of their constituents and customers concerned.

7. The directions contained in this circular have been issued under sections 10(4) and 11(1) of the Foreign Exchange Management Act, 1999 (42 of 1999) and are without prejudice to permissions/approvals, if any, required under any other law.

Yours faithfully,

(Rudra Narayan Kar)
Chief General Manager-in-Charge